What Trump Means for Small Business Borrowing

At its core, the 2024 election largely ended up being about the price of eggs. This is typical, with economic issues generally taking center stage at election time. In short, a “bad economy” will always hurt the party in power.

The economy over the past four years has been strange, with certain sectors doing well, and others doing not-so-well. The not-so-well part has hit consumers and small businesses particularly hard. The price of consumer staples has risen, and people everywhere have felt the impact. Not to be left out, small businesses have been affected to a large degree as well. Business borrowing, whether for lines of credit or equipment financing, is down. Defaults are up.

The party in power paid the price, like it typically does. But the price of eggs aside, this change in leadership will likely see a loosening of banking restrictions that should help both businesses and consumers.

Defaults have kept lenders from lowering rates along with the Federal Reserve. Beyond defaults, also giving lenders pause is a fairly high capital requirement regulation, that is, how much capital banks need to keep on hand. This already-high capital requirement was set to increase by 9 percent in 2025 for the largest banks under new proposed regulations, called “Basel III Endgame.”

But the Basel III Endgame capital requirement hike may very well be off the table now. Most experts feel that is now the case. A recent Reuters story quoted former Comptroller of the Currency Gene Ludwig saying, “The Basel Endgame rule could be completely dead.” Peter Conti-Brown, associate professor of financial regulation at The Wharton School of the University of Pennsylvania, writes “Basel III is likely dead.” I agree that it will likely be relaxed.

The lending industry has not been healthy for several years. Lenders large and small were fairly united in opposition of Basel III Endgame’s higher capital requirements, feeling they went too far. Banks are in the business of lending money. While regulated capital requirements are clearly needed to foster stability and confidence, most banks feel overly aggressive regulations leave too much money sitting idle, which helps no one. They would much rather lend it.

If capital requirement rules are relaxed, businesses and consumers should expect lending to start making a comeback. Lenders will participate faster in the current environment of falling rates. Borrowers, especially those with credit on the higher side, will hopefully soon see better lending terms than they’ve seen over the past few years.

This, of course, has a domino effect. Speaking from my usual equipment financing perch, businesses that can borrow to buy new equipment will start offering better services and start growing. This allows them to hire and pay more, which puts more money in people’s pockets, and so on and so on.

I realize that the above makes it all sound quite simple, but nearly any lender you talk to will decry the recent regulatory environment as overly stifling. Keeping a large sum of money under the mattress has never been a good idea. No matter who is in office. Better to circulate it and keep it changing hands. We all end up benefiting from that.