For the past few months, Donald Trump has assured the public his administration will terminate Dodd-Frank, freeing banks from over regulation.  For those unaware, Dodd-Frank is a reform act meant to decrease the chance of another Financial Crisis.  The act was passed in 2010 and essentially gives government regulatory control over banks, helping determine risk.  Critics argue that the Dodd-Frank Reform has ultimately hurt small business lending and is the reason small business funding has grown slowly since 2010.

Although there may be some truth to that, if the Trump administration does away with Dodd-Frank, don’t expect small business lending to increase heavily over night however.  The simple fact of small business lending is that…well…it’s not so simple.  

The truth is that there has not been a direct correlation proven between Dodd-Frank and a decrease in small business funding by banks.  "In 2008, banks had made more than $336 billion in smaller commercial loans, according to the Federal Deposit Insurance Corporation. By mid-2010, just as Dodd-Frank was signed into law, that total dropped to $310 million, and continued dropping for the next few years. Yet as the economy has gradually improved, so has bank lending to small businesses. By the end of June, six years after the passage of Dodd-Frank, bank business loans of less than $1 million stood at $328 billion–not very far off from that 2008 peak.“  This proves that small business lending was on its way down reflecting the economy.  As the economy grew so too did lending.  

You can always argue that slow growth is the result of regulation, but there may be more to it than just one piece of reform.  According to the Karen Mills, the former head of the Small Business Administration, "It’s much more complicated,”  

In her eyes “Taking a focused look at clarifying the regulatory environment around online lending, reducing some of the burdens of regulation on small and community banks, and reducing the burdens on community banks so they can go back to making more small-dollar loans is a good thing.”  In other words, getting rid, or adding a single reform will not create the full solution need for small organizations.  It will take multiple efforts to help energize the economy.


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