The U.S. Department of the Treasury released a policy brief on trends in small business capital access and the growth of non-bank financial technology providers in the small business market.
The brief, called Financing Small Business: Landscape and Recommendations, summarizes feedback gathered from the Office of Financial Institutions Policy’s September roundtable on small business finance and financial institutions.
In addition, the brief summarizes barriers facing small business owners seeking financing from capital providers, including banks, fintechs, and credit unions. It also highlights particular issues faced by small business owners who have struggled to obtain financing.
Among the key findings, the brief found:
• Many small business owners expressed difficulty in obtaining information about, or comparing, financial products, especially those with variable repayment terms, interest rates, fees, or financing arrangements, including merchant cash advances, factoring, or equity financing, which may contribute to a less competitive market;
• Over the last decade, large banks have tightened credit standards and originated fewer loans, while fintechs have originated more loans to small businesses;
• Community banks and mission-driven lenders have made a meaningful impact in providing capital to underserved populations but may not fill remaining gaps in capital access; and
• Underserved business owners can face unique challenges, including limited connection to small business capital sources, lack of personal resources, and cultural barriers to accessing financial services.
The brief outlines potential next steps to be considered by Treasury, government agencies, and the financial services sector to foster a robust small business financing market.
Among the recommendations, the brief suggested that:
• Policymakers continue to engage with industry stakeholders to evaluate the need for additional small business financing and discuss how to expand access to fill gaps;
• Capital providers consider how to deepen small business access to capital, including through leveraging government programs within prudent risk management standards;
• Policymakers, including legislators and regulators, conduct research and analysis to determine whether small business capital providers would benefit from more uniform product disclosures across product types, enabling more ready comparison and stronger competition;
• Capital providers consider voluntarily developing uniform disclosures with understandable terms for small businesses, including information about repayment terms and fees;
• Financial regulators continue to coordinate with other government agencies to foster a robust and inclusive financial system, which includes small business financing, and develop coordinated resources for small business owners; and
• Regulators continue to coordinate their approach to emerging technologies, such as AI, including promoting consistent and robust standards for financial institutions deploying new technology.