Every politician lavishes praise on the mom-and-pop economy. But few do much to help it.
Donald Trump fancies himself a man of the people, with business-friendly policies meant to create millions of jobs. But cutting corporate taxes and slashing federal regulations, such as the 2010 Dodd-Frank law, may not be enough to push small-business activity back to the more robust levels of a decade ago.
“Small-business owners love a tax cut,” Karen Mills, head of the Small Business Administration under President Obama, tells Yahoo Finance in the video above. “And they really do need less regulation. But just getting rid of regulation alone does not make things better for small-business owners in areas like access to capital.”
Banks severely curtailed lending in the aftermath of the 2008 financial crisis, with small business suffering the most, since they often lack the kind of collateral Fortune 500 companies have. And new restraints on banks have reduced the incentives to make smaller loans, such as those of $150,000 or less. Even if Trump signs a repeal of major parts of the Dodd-Frank law, banks may still not be all that interested in making small-dollar loans with risks that are hard to assess, and limited profit potential.
Innovation could help. Online lenders such as OnDeck, Prosper and Lending Club have emerged during the last few years to offer loans to underserved customers such as small businesses. Unlike big banks, with laborious underwriting procedures, online lenders use algorithms to assess risks and approve loans in as little as a day or two.
That can be a huge time-saver for business owners, but borrowers have to make sure they understand the fine print and compare apples to apples when looking at interest rates, fees and the total cost of borrowing. “All of those regulations you’ve been hearing about, they don’t apply to small businesses,” says Mills, who recently co-authored a Harvard Business School study on small-business lending. “They only apply to consumers. We should have some borrower protection [for small businesses].
One rumored nominee to run the SBA under Trump is Linda McMahon, the co-founder of World Wrestling Entertainment. Assuring better access to capital is likely to be one of her top priorities. And while Trump promises to cut federal red tape, a bigger problem for many business owners is excessive regulation at the state and local level, such as permitting. Trump can’t override state and local rules with federal ones, but he can use the bully pulpit to jawbone regulators and encourage them to ease up. Trump’s jaw will be moving a lot during the next four years, and business owners might get something out of it.
Rick Newman is the author of four books, including Rebounders: How Winners Pivot from Setback to Success. Follow him on Twitter: @rickjnewman.