A new report by the Bipartisan Policy Center recommended several reforms that would help the U.S. financial system improve the ability of small businesses (SMBs) to get financing, driven in part by a decline in startup formation in recent decades.
The center’s Task Force on Main Street Finance — co-chaired by former Senator Olympia Snowe, former U.S. Small Business Administrator Karen Mills, FirstMerit Corporation CEO Paul Greig and investor Mark Walsh — urged the federal government to enact changes that would improve data on small business financing, recalibrate existing financial regulations, make capital markets work better for small business, and promote innovation and integrating technology.
“It is critical that we respond to the needs and concerns of Main Street America,” said Snowe in a statement. “Small businesses are essential job generators, and the major driver of economic growth and vibrancy for all regions of the country.”
She said the “pragmatic recommendations” included in the report would make the financial system work better for entrepreneurs, no matter their business size or geographic location.
Mills said that small businesses have seen gaps in their ability to access credit since the Great Recession, which represent a threat to their ability to drive economic opportunity. She noted that the risks of bad actors should be considered as part of the reforms made.
The proposed changes include moving the collection and storage of small business lending data, required under the Dodd-Frank Act, from the Consumer Financial Protection Bureau (CFPB) to the Office of Financial Research (OFR). The CFPB would implement Dodd-Frank data collection provisions in stages, starting with loan-origination data that lenders already collect.
The report called on Congress to establish a national commission to conduct a comprehensive review of existing financial laws and regulations, and establish a pilot program to test the efficacy of coordinated bank examination teams. The CFPB would need to adjust its qualified mortgage and ability-to-pay rules to better reflect the circumstances of small business borrowers.
Suggestions included that the U.S. Securities and Exchange Commission (SEC) review Regulation Crowdfunding (CF) to find ways to better support crowdfunding campaigns and find the benefits of collecting additional data, as well as look at crowdfunding disparities among different demographic groups.
The report also asked Congress to amend the National Bank Act to authorize the Office of the Comptroller of the Currency (OCC) to issue a federal charter for non-bank financial companies. States would need to work together through the Conference of State Bank Supervisors (CSBS) to harmonize requirements, supervision and coordination for non-bank financial firms.
The BPC report cited an analysis by Goldman Sachs, showing — as a result of the Great Recession — about 675,000 more small businesses were considered ‘missing,’ compared to what trends would normally predict. In addition, U.S. Department of the Treasury data shows that the recovery of bank lending following the Great Recession was slower than during any of the past seven economic recoveries, and was especially slow for smaller firms.
A 2016 survey of small businesses by the Federal Reserve showed that the availability of credit, or the securing of funds for exemption, was listed as the top financial challenge for these firms, according to the report. More than 60 percent of businesses that applied for financing in the prior year reported a financing shortfall, and noted that small business firms were not getting the same amount of share as their larger counterparts.