The U.S. Department of the Treasury has issued a policy brief titled “Financing Small Business: Landscape and Recommendations.” This document builds on the department’s ongoing efforts to support small businesses. It compiles feedback from a roundtable held by the Office of Financial Institutions Policy in September, which focused on changes in the small business finance market due to new technology and artificial intelligence.
The brief outlines trends in accessing capital for small businesses and notes the rise of non-bank financial technology providers in this sector. It also identifies barriers that small business owners face when seeking financing from banks, fintechs, and credit unions. The document highlights issues faced by those who have struggled to secure funding and suggests potential steps for Treasury, government agencies, and the financial services sector to enhance the small business financing market.
Key findings indicate that many small business owners find it challenging to obtain or compare information about financial products, particularly those with variable terms such as merchant cash advances or equity financing. Over the past decade, large banks have tightened credit standards and reduced loan origination while fintechs have increased lending to small businesses. Community banks and mission-driven lenders have significantly impacted underserved populations but may not fully address remaining gaps in capital access. Underserved business owners often encounter unique challenges like limited connections to capital sources, lack of personal resources, and cultural barriers.
The brief recommends that policymakers engage with industry stakeholders to assess additional financing needs for small businesses and explore ways to expand access. Capital providers are encouraged to deepen access through government programs like those offered by the Small Business Administration while maintaining prudent risk management standards. Policymakers should consider research into whether uniform product disclosures could benefit small business capital providers by enabling easier comparison and fostering competition.
Furthermore, capital providers are urged to voluntarily develop uniform disclosures with clear terms for repayment and fees. Financial regulators should coordinate with other government agencies, including Treasury, to promote an inclusive financial system that supports small business financing. They should also align their approach towards emerging technologies like AI by promoting consistent standards for financial institutions using new technology.
