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Just What Does Connecticut Do for Small Business?
The answer is: more than you think. Here’s how to find out what and where
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Business New Haven
4/5/1999
By: Susan Banfield
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Connecticut is determined to help small businesses succeed,” proclaims Gov. John G. Rowland. And well it might, seeing as how nearly all the businesses in the state qualify as “small businesses” under the federal definition (500 employees or fewer). But just what is being done to provide that help?
The answer is, quite a lot - but finding out about all the different benefits so that one can take advantage of them may be difficult. The information is spread across a broad array of different agencies and organizations. Assembled all in one place, the list is a long one. Assembling it, however, can be a challenge.
The kind of help that is likely to come to mind first when people think of what government can do for business is tax breaks - low rates, tax credits, exemptions. According to Peter Gioia, an economist with the Connecticut Business & Industry Association (CBIA), in recent years a “substantial number” of different kinds of tax relief have been enacted by the state legislature.
First, the corporate income tax rate has been lowered from 13.8 to 8.5 percent, and will be reduced yet another percentage point by 2000. The current rate is lower than that of neighboring Massachusetts (where it is 9.5 percent of allocated income).
While only a little more than a third of small businesses in the state are organized as regular corporations, according to a survey done three years ago by Arthur Andersen, for those that do have a standard corporate structure, this reduction can be of real help.
Connecticut is also trying to bring itself into line with standard practices in other states with respect to taxes on S corporations, says Scott Centi, tax manager for McGladrey & Pullen in New Haven. Businesses organized in this way are not taxed in most other states.
“In the past, Connecticut always taxed them,” Centi says. “The state is phasing out these taxes by the year 2000. I think the state is making an effort.”
Connecticut also recently did away with the conveyance tax on limited liability corporations (LLCs), a way of organizing small businesses that is becoming increasingly popular.
There are also several types of tax credits that can benefit small businesses. There are two types of credit for research and development, for example, which can be of real significance to high tech and biotech firms.
One provides a credit of from one to six percent on investments in R&D. The other gives a 20-percent credit on the amount exceeding R&D expenditures in the previous year.
There is room for improvement in the rate here. Massachusetts, for example, has an R&D credit of ten percent. However, a beginning has been made.
Another credit targeted specifically at small businesses is a ten-percent credit for increased investment in machinery and equipment for companies with 250 or fewer employees.
Small businesses of any type can also benefit from the new three-percent fixed capital investment credit, which applies to personal property placed in service during the tax year, and from the electronic data processing credit, which provides for a dollar-for-dollar credit on personal property tax paid on EDP equipment.
A number of tax exemptions benefit small businesses as well. These include a 100-percent sales tax exemption for machinery, raw materials, tools and fuel used in manufacturing or in the biotech industry, and a 100-percent sales tax exemption for costs incurred in creating and maintaining a Web site.
Special tax incentives are also available to businesses in specific locations. Manufacturing firms and certain types of R&D firms located in “Targeted Investment Communities” (TICs) can qualify for a state corporate tax credit of 25 percent for ten years. (TICs in this area include Bridgeport, Hamden, New Haven, Meriden, Middletown and Waterbury.) Manufacturers in these TICs can also receive an 80-percent exemption from real and personal property taxes for five years.
There are additional tax benefits for businesses located in designated “Enterprise Zones” within TICs around the state, and in the “Enterprise Corridor” which encompasses Naugatuck, Beacon Falls, Seymour, Ansonia and Derby.
A complaint closely related to gripes about high taxes has been that of many employers about Connecticut's high workers compensation rates. Over the past seven years, however, these have been reduced by about 45 percent. Unemployment insurance rates have dropped as well.
Having to turn over less of one's profits to the government is certainly a financial advantage, but another very tangible need of both start-up and established small businesses is access to capital. There are currently a wide array of programs available through a number of agencies and organizations that can provide this kind of financial help for the state's small businesses.
The U.S. Small Business Administration (SBA) is a federal agency whose loans and loan guarantees are targeted specifically at small companies. Under its LoDoc program, the SBA can provide an expedited 80-percent guarantee on loans of $100,000 or less. The Fastrak program provides a 50-percent guarantee on loans of a similar size.
Through its Microloan program, the SBA also provides very small loans of from $500 to $25,000. There are other SBA loan programs as well.
At the state level, the Connecticut Development Authority (CDA) is a quasi-state agency that works with private-sector lenders to provide businesses with a wide rage of loans and loan guarantees.
Many of these can benefit smaller businesses. The CDA makes direct loans to companies which may not have been able to obtain bank financing.
Under CDA auspices, the Connecticut Business Development Corp. provides long-term financing for building or equipment investments for established small businesses. Through its URBANK program, the CDA also makes it easier for small businesses to get bank loans. URBANK provides banks with loan protection when a company is unable to meet conventional bank lending criteria.
Finally, CDA will pay for 25 percent - up to $25,000 - of money a company borrows to pay for training for its employees. The CDA Job Training Finance Program can be an ideal solution to the persistent problem small companies in many industries have finding skilled employees.
Industries eligible for the program include manufacturing, high technology, information systems and communications, agriculture or aquaculture, R&D for manufacturing and certain types of servicing, overhauling, and rebuilding of industrial equipment.
For smaller high tech companies, the state provides special financial help through Connecticut Innovations Inc. (CII), the state's technology investment arm. Of the companies CII has invested in since 1990, 75 percent have had fewer than 25 employees, and 98 percent have had fewer than 50.
CII commits approximately $10 million a year in straight equity or near-equity investments, focusing on firms in the following fields: advanced marine applications, advanced materials, aerospace, biosciences, energy and environmental systems, information technology and photonics.
In addition to the numerous state programs, there is also financial help available for small businesses at the local level. There are a number of regional revolving loan funds around the state that can provide companies with supplemental financing. These include, in this area, the Bridgeport Economic Development Corp. (BEDCO), the Naugatuck Valley Development Corp., and the New Haven Community Investment Corp.
There are other, more specialized, types of financial assistance available to Connecticut small businesses as well. New small companies can get relief from the cost of an office or facility by qualifying for incubator space.
In this area incubator space is available at Science Park in New Haven and in the Bridgeport Innovation Center. The latter has 219,000 square feet of space, of which 33,000 feet is presently available. Businesses currently utilizing it include artists, skilled craftsmen, computer companies and communications firms.
Other small companies can benefit from the state's set-aside program. According to Connecticut General Statute 32-9(e), all state agencies must reserve 25 percent of certain types of annual budgets and award contracts for certified small businesses.
To qualify for the set-aside program, a company must have been in business for at least one year, must be headquartered in Connecticut, must have gross annual receipts not exceeding $10 million, and must have 51 percent of its ownership involved in the daily affairs of the business.
The Connecticut Economic Resource Center (CERC) serves as a clearinghouse for information about the many different economic resources available to Connecticut small businesses. CERC can be reached at 1-800-392-2122.
Frequently guidance, counseling and other kinds of personal or informational assistance can be just as important to the success of a small business as financial help. There are abundant resources for this kind of help as well.
For small companies just getting off the ground, there is a wide array of free help available. CERC's new “SmartStart” program has streamlined the often bewildering process of registering, permitting and licensing.
The Connecticut Small Business Development Corp. provides counseling to business owners and would-be business owners on business plans and other topics. CSBDC also provides free accounting services to small and start-up businesses that cannot afford an accountant.
According to Director Dennis Gruell, 530 new jobs have been created through business expansion resulting from CSBCD counseling. The CSBDC has 13 branches around the state, including ones in Bridgeport, Waterbury, Middletown and New Haven.
The Service Core of Retired Executives (SCORE) provides free consulting to small businesses donated by retired business executives and business owners. SCORE also presents regular workshops on a host of topics. Locally, SCORE has offices in Bridgeport, Milford and New Haven.
The Entrepreneurial Center at the University of Hartford - which has a Bridgeport branch - has a program that provides training, technical assistance and support to new business owners. The center continues to work with program graduates until their businesses are up and running.
The failure rate of new enterprises started by center graduates is less than one-tenth that of the failure rate for new businesses in general. Because of the program's proven track record, center clients may be eligible for a special loan program offered by People's Bank.
In addition to these statewide programs, counseling and training for small-businesses is available at a number of area centers, including the Bridgeport Business Outreach Center, the Bridgeport Economic Resource Center and the Regional Business Resource Center in New Haven.
Finally, because of the special place manufacturing holds in the state's economy, Connecticut has a program devoted to providing counseling and technical advice of all kinds specifically to small manufacturers. The CONN/STEP program has 20 field engineers who go on-site to help with anything from business plans to shop walk-throughs to high-level technical assistance. Currently CONN/STEP is working to introduce the state's small manufacturers to the concepts of lean manufacturing.
For further information about these programs and others contact a local office of the state's Department of Economic & Community Development (in New Haven, 203-867-6001; in Bridgeport, 203-336-8700), or you can call CERC, at the number listed above.
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