Bring small-business financing into the 21st century with common-sense reforms: Paul Greig (Opinion)

September 30, 2018

Bring small-business financing into the 21st century with common-sense reforms: Paul Greig (Opinion)

NAPLES, Florida -- Having worked as a banker for over 40 years, I have long appreciated how important capital is to the growth and health of small businesses. Becoming a member of Cleveland’s Council of Smaller Enterprises has given me an even deeper appreciation about how small business owners need secure and robust financing to manage their inventory, make payroll, and finance expansion. A small business’s ability to secure capital can make the difference between its success or failure.

Unfortunately, many small businesses have trouble accessing capital, especially those seeking loans of less than $250,000.

The Bipartisan Policy Center’s Task Force on Main Street Finance, which I co-chair, has made 27 practical recommendations to help improve how the financial system serves small businesses and entrepreneurs. Our recommendations look at how data, regulation, capital markets, and technology can be better leveraged for the benefit of small business owners.

In an era of abundant information, data can be better leveraged by policymakers and lenders to help small businesses with their financing needs. For example, the IRS currently provides small business tax data to lenders at the request of the small business owner, so the lender can make better credit decisions. However, this process is slow, cumbersome, and can delay the time it takes for a small business to obtain the financing it needs. A small business owner who needs capital quickly to fix a broken machine, for example, can pay dearly for this delay.

If the IRS gets congressional approval, it can collect fees from lenders that use IRS small business data, so it can digitize the relevant systems and speed up this process. The House of Representatives has passed legislation to make this happen, but it is still pending in the Senate.

Smart regulation is also critical. An effective regulatory system is routinely updated to adapt to a changing environment and to consider new evidence. A serious, bipartisan review of post-crisis regulation is long overdue and can help make the financial system work better for small business owners. This review could provide recommendations on how the financial system can more effectively promote financial stability and consumer protections, while also reducing unnecessary or excessive compliance burdens.

Policies designed to help underserved communities have not accounted for the rise of online banking. Reforming these policies to account for increases in mobile access and online banking services can make them more effective at serving small businesses in underserved communities.

The Comptroller of the Currency has testified on the need to reform anti-money-laundering rules to make them more efficient and effective. Proper reforms can make anti-money-laundering rules better target bad actors, while reducing the compliance costs that disproportionately affect smaller banks, which are traditionally more likely to serve small business owners.

Regulatory coordination is also important. The Federal Reserve recently issued a policy statement to promote better coordination with other bank regulators on formal enforcement actions. These efforts can further be enhanced through pilot programs for conducting joint examinations among bank regulators. These pilot programs can help reduce duplications, inconsistencies, and gaps in regulation.

Capital markets have traditionally been the domain of big business, but they can be tapped further to help small business financing.

In 2015, the Securities and Exchange Commission issued a rule allowing small business owners to sell shares in their business through online portals. Now is a good time to see how effective this new form of financing has been and whether it can be improved. Caps limiting the amount wealthier investors can put into these investments can also be raised to allow for more capital to flow to small business owners.

Technology plays an important role in promoting small business financing and needs good public policy to guide its development.

Regulators can help financial innovators through a program that provides leeway to test new products and business models. This can help foster responsible financial innovation that benefits small businesses, while mitigating their unintended consequences and weeding out bad actors that try to take advantage of end-users.

These are just a few of the pragmatic ideas from our task force for making the financial system work better for Main Street. They have support from Republicans and Democrats, something that is essential in our polarized political environment. The many small business owners I have spoken to in Ohio believe the financial system works best when it is a partner in their success.

As a banker, I wholeheartedly agree. We can help improve this partnership by coming together to promote smart policy to make the financial system work better for Main Street small business owners and their employees.

Paul Greig, former CEO of FirstMerit Corp., is a member of Cleveland’s Council of Smaller Enterprises and a co-chair of the Bipartisan Policy Center’s Task Force on Main Street Finance. He’s currently chairman of the board of directors at California-based Opus Bank. 


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