The record-setting performance of the stock market shows an uptick in confidence by big and small business under Donald Trump’s leadership in Washington. In Q1 2017, the Dow saw highs not seen since 1987, mostly buoyed by the Trump administration’s actions to reform taxes, cut regulations and ease banks’ capital requirements. Officials say these reforms will boost lending to individuals and small businesses and therefore create more jobs.
Here are a few proposed reforms by President Donald Trump that will mean more access to loans for more people and small businesses.
- Rollback of Dodd-Frank
The 2010 Dodd-Frank Act is widely seen by the financial sector as an overreach by Democrats to rein in Wall Street’s abuses that led to the 2008 financial crisis. But the law created thousands of pages in new regulations that have been difficult and costly to implement, especially for small community banks.
“We expect to be cutting a lot out of Dodd-Frank,” President Donald Trump recently said. “I have so many people, friends of mine, with nice businesses, they can’t borrow money, because the banks just won’t let them borrow because of the rules and regulations and Dodd-Frank.” Changes or elimination of this law would ease the regulatory burden on the banking industry, and many observers believe that will result in significantly more loans available to consumers and small companies.
- New leadership at the Small Business Administration (SBA)
In 2009, Barack Obama and a Democrat-controlled Congress passed a $787 billion stimulus that largely failed to produce Obama’s much touted “shovel-ready jobs.” Trump wants federal dollars from the nation’s capital to lead to the creation of more jobs, especially for small businesses.
New appointee Linda McMahon will head the Small Business Administration and she plans to implement a few changes designed to help smaller firms compete with big companies and get more work from Washington. “McMahon wants to streamline the process for small businesses seeking federal contracts to help them compete against big businesses,” says Eric Goldschein of LendGenius. The changes aim to give small businesses a leg up on federal contracts, which saw plenty of work awarded to Fortune 500 companies (i.e., big political donors) under the Obama administration.
More federal contracts will create demand for business loans as small companies seek the resources to work on new government projects.
- Easing banks’ capital requirements
The Trump administration wants to lower banks’ capital reserve requirements to free up money for lending. U.S. banks are required to retain a portion of their depositors’ money as capital reserves but the requirement also limits their ability to make loans. Republican leadership in Washington believe that greater access to credit will stimulate the economy and create millions of new jobs. Additionally, Trump’s advisors want to rein in the Consumer Financial Protection Bureau (CFPB) which has created thousands of pages of new financial regulations without congressional oversight.
In the aftermath of the 2008 financial crisis, the industry became extremely risk-averse and banks simply stopped lending to small businesses, even ventures that were luckily enough to experience high growth. But since 2013, loans have increased 6 percent a year and U.S. banks now have $9.1 trillion in outstanding loans. Last year, loans at JPMorgan increased by 10 percent; they increased by 1.1 percent at Bank of America and 5.6 percent at Wells Fargo.
If you need access to capital to fund your growing venture, things are looking bright. The new administration wants to help thriving companies by reducing red tape, lowering regulations and cutting taxes.