Despite opposition from Republicans, Congress recently passed and President Obama signed into law the Small Business Jobs and Credit Act of 2010. The legislation could prove to be a boon for some hotel real estate entrepreneurs, say industry experts, particularly those looking to develop in the limited-service segments of the business.

Still, the near-term effects of the law depend greatly on consumer demand for lodging. Despite year-over-year gains in occupancies and rates, the performance of U.S. hotel industry remains relatively weak compared with the peak years of 2006 and 2007. As a result, few hotels of any size will probably be developed in the new few years.

“It’s great for our industry,” says Choice Hotels President & CEO Steve Joyce, “although I believe it will have more impact in the short term on the transactions side of the business rather than development.”

The act includes a wide range of provisions that combine incentives, new regulations and tax cuts to help hotel developers and other small businesses rebound from the lasting effects of the recession. Key elements of the law include:

• Higher limits and other incentives for the SBA loan program. The size limits on SBA 7(a) loans rise from $2 million to $5 million, and government guarantees on those loans go up from 75% to 90%. Similarly, loan limits are raised from $1.5 million to $5.5 million for 504 loans and from $300,000 to $1 million for 7(a) “express” loans. The loans won’t be subject to fees through the end of 2010.

“This has significant impact at the grassroots levels of our industry,” says Mark Carrier, current chairman of IAHI, the owners' association for IHG-brand hotels, and senior vice president of the B.F. Saul Hotel Division. “While the new loan limits won’t be applicable to someone trying to finance an $80-million hotel project, they’ll serve to backstop the ability of local lenders to make loans for entrepreneurs looking to build a Holiday Inn Express or a Fairfield Inn, or any project in the $7 to $10 million range.”

Nonetheless, the effects of the new law have been swift. According to a statement from SBA Administrator Karen Mills, a week after enactment of the law, more than 2,000 small business owners who had been waiting for SBA-backed loans have had their applications approved. No word on how many of those loans, if any, are going to the hotel industry.

• Establishment of a $30-billion lending fund to help community banks extend financing to small businesses. Carrier doesn’t see the change in loan limits or the new fund as a panacea for all of the industry’s ills, however. As he points out, many banks already have significant exposure to commercial real estate and they’re somewhat challenged to make additional loans.

“As positive as it is, the law doesn’t overcome any existing underwriting challenges a lender may have,” says Carrier. “Nor is it an escape valve for properties under distress. It won’t help an owner who owes $8 million on a hotel that’s now only worth $6 million.”

• Enactment of $12 billion in targeted tax cuts for small businesses. The law allows small businesses to write off $500,000 in capital expenditures made this year and next and extends a break for all businesses to write off 50% of capital dollars spent and put into place this year.

To encourage investment in small businesses, the law includes an incentive for investors to buy stock in smaller C-class corporations (those with assets under $50 million). It eliminates capital gains taxes on these investments if they’re held for at least five years. This break is short-lived, as investors must buy the stock before the end of the year.