99% Small Business Owners Gained Bucks Under Trump's Administration

According to Trump’s first address to Congress, he repeatedly emphasis on the importance of rejuvenating small business in America.

Many of the proposals aimed at accomplishing this revolved around reducing illegal immigration and encouraging people to “buy American.” While it can be argued that these may be beneficial for small businesses, they fail to address the single most important issue facing the sector: access to capital.

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Since the financial crisis of 2008, the lending landscape has evolved rapidly due to two driving forces: bank consolidation and a dramatic reduction in the number of bank charters granted.

This has resulted in reduced competition, stricter lending parameters, and the rise of high-cost alternative lenders. Of course, the ultimate victim of these changes are the small businesses themselves.

One very important step is to liberalize the bank charter granting process and increase the number of providers of capital that have access to the all-important FDIC guarantee for deposits. 

    

Our proposal envisions innovative lenders that receive a “focused” bank charter with less regulatory burden, but much higher limitations on the activity of the new recipient and greater consequences for not following the rules.  

For example, to participate an entity may only lend to small businesses (less than $10MM in revenue) and carry slightly higher capital requirements than traditional banks.  

The “focused bank” can pay slightly more to encourage deposits, but because those deposits are dramatically cheaper than equity-funding or facilities provided by other banks, the focused bank can offer much more competitive rates to its small businesses.

By encouraging the FDIC to grant more focused bank charters, the administration could foster innovation, increase access, and drive down the cost of capital for millions of small business owners. This will lead to substantially more jobs, improved innovation and stronger communities.

   

Encouraging innovation and driving down costs

What we see now in the market is the creation of another funding gap. Small businesses looking for under $250,000 are met with an ever-shrinking number of options for their funding needs.

As alternative lenders continue to struggle and disappear, this funding gap is only going to grow. Small business owners will be caught in a funding no-man’s-land of sorts, unable to move forward with banks, but unwilling to pay the high-interest rates of the remaining alternative lenders.

Fortunately, there is a solution. By reducing the regulatory burden and encouraging the issuance of new focused bank charters, especially to emerging fintech companies, the Trump administration could drive down the cost of capital while simultaneously opening up access to millions of small business owners in need.

This liberalization of the bank charter process and the associated regulatory overhead would increase the number of community banks able to lend to small business and enable innovative fintech lenders to take deposits, thus dramatically reducing their dependence on expensive private capital.

By making it easier to become a startup bank, the administration can also inject a much-needed dose of innovation into the banking sector. Alternative lenders, for example, would be able to compete with traditional banks regarding cost, while offering a dramatically better customer experience.

By focusing on policies designed to encourage the creation of new, FDIC insured, focused banks, the Trump administration could, at least in theory, increase access to affordable capital and unleash a new wave of small business growth.

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