When Donald Trump was campaigning for president, he advocated a series of policy changes designed to change how the federal government operates. To date, however, the incoming administration has been vague as to exact details of how and when those pledges would become the core of federal policy. And the new president’s distinctive talent for ruffling feathers on both sides of the political aisle could work against his efforts to enact change.
“I am skeptical much will be done in Washington,” said Brent Nyitray, director of capital markets at Stamford-based iServe Residential Lending. “The Democrats are united in opposition against Trump and the Republicans cannot trust him further then they can throw him.”
Trump does have GOP allies when it comes to rolling back the Dodd-Frank Act, the 2010 legislation that created a regulatory regimen governing the financial services world. Nyitray noted that even some Democrats would be willing to consider rewriting this law as it relates to community-level lenders, which had been in the forefront of small business lending prior to the Great Recession.
“There is a bipartisan consensus that the Dodd-Frank Act was a little too heavy-handed on small banks,” he said. “Their compliance costs have gone way up, which really inhibited their ability to do what they do.”
Peter Gioia, vice president and economist for the Connecticut Business and Industry Association in Hartford, said that his conversations with community bankers inevitably circle to the operational expenses tied to the Dodd-Frank Act. “It is one thing for a Bank of America with a battalion of lawyers to deal with the complex regulation,” he said. “It is another thing with small community banks — it is a real hassle and costly burden for them. Now, I am not saying that we don’t need regulation to avoid another 2007 meltdown. But one of the community banks will not spur another meltdown.”
Deregulation could potentially lure large commercial banks back into the small — business lending arena. “The money market funds, hedge funds, insurance premium pool took over from the commercial banks in the last four to five years at much higher rates,” said Raymond Manganelli, a professor and executive dean at Mercy College School of Business in Dobbs Ferry. “Commercial banks will come back into the market at lower rates, allow riskier loans — not crazier loans, but lower-cost loans than they are doing now.”
Manganelli added that the return of the commercial bank lenders could not come at a better time. “A big company can get a loan at 4 to 5 percent — LIBOR plus 2 to 3 percent,” he said. “But a small company now pays 14 to 16 percent, which is 1,000 basis points more just because of real or perceived risk.”
John M. Tolomer, president and CEO of The Westchester Bank in White Plains, was not convinced that deregulation aimed at the Dodd-Frank Act would spur new small business lending. “Dodd-Frank’s impact would be de minimis,” he said. “Our bank went from being the smallest bank in America in June 2008 to becoming part of the top 20 percent by September 2016, and our growth came largely from loans to small business.”
Tolomer said that a positive perception of a vibrant economy would encourage more small business creation — and, by extension, lending — than deregulation.
“Every real economic turnaround starts with confidence in the economy,” he said. “Anecdotally, I hear more and more people expressing confidence that things will be better in 2017. This will spur people to starting businesses and feeling better about the future.”
While Tolomer did not see any percolating wave of new startups, Andrew Flamm, director of the Pace University Small Business Development Center in Manhattan, noted an entrepreneurial movement occurring on the fringes of the mainstream economy.
“We’ve seen a lot of individuals starting businesses on the side,” he said. “They have full-time jobs, but they are doing this on nights and weekends as their real passion. A lot of people want to transition from their day job to the small business. This approach lets people use that as a soft launch.”
Kim Jacobs, executive director of Community Capital New York in Westchester County, an alternative lender for small businesses, pointed to the U.S. Small Business Administration’s microloan program as a crucial channel for new business owners. She said Trump’s nomination of Linda McMahon, the former CEO of World Wrestling Entertainment, as the SBA’s next chief was a welcome pro-business signal.
“Our community development financial institution colleagues in Connecticut worked with her in past and say that they have a fairly positive feeling about that appointment,” she said.
And then there is the issue that could become the Trump administration’s most controversial plan: the repeal and replacement of the Affordable Care Act. The long-term impact on smaller businesses, particularly cash-strapped startups in need of loans, is uncertain. Jacobs cautioned that it is too early to either panic or relax.
“Most of the business owners we work with are responsible for securing their own health insurance,” she said. “Their ability to get insurance could cause them to worry, but right now it is too early for them to scramble because it is not known where all of the cards will fall.”