If you voted for Donald J. Trump believing that he would make it easier to get a small-business loan, you may be in for four long years of disappointment.

In recent days, the president-elect and his advisers have repeated one of Trump's campaign promises: that he would repeal the 2010 Dodd-Frank financial reform law, which they have blamed for reducing bank loans to entrepreneurs.

"One of the biggest problems that Dodd-Frank has caused is, it has restricted the lending to small businesses," hedge fund manager Anthony Scaramucci, a member of Trump's transition team, told NPR last week, echoing comments the president-elect made earlier this month to The Wall Street Journal.

Unfortunately, it's just not that simple. First of all, Dodd-Frank wasn't the primary cause of the choking off of small-business credit; for that you can blame the financial crisis, which kicked things off two years before the law was passed. Small businesses failed in droves during the recession, and since then, banks have been understandably warier about making what are generally risky loans.

Also, the numbers don't back up Trump's claims. Government data show that small-business loans dropped sharply before Dodd-Frank existed--and have recovered in the past four years, despite the law's continued existence.

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.

Still, many bankers and politicians have long blamed Dodd-Frank for hurting Main Street. And yes, the law did in some ways compound the credit crunch for small businesses. Dodd-Frank's requirements increased regulatory and compliance costs at most banks, including at the smaller regional and community banks that are often the most welcoming to small-business owners.

In the years following the financial crisis, many of those small banks closed or sold to bigger companies. But there, too, it's impossible to fully separate out the effects of the recession (loans going bad, borrower demand drying up, revenue shrinking) from the effects of the post-crisis regulation (increased compliance costs and business restrictions). It's equally difficult to argue that things would have been very different without the law.

Which brings us to the more speculative question: If Dodd-Frank wasn't primarily responsible for restricting lending to small businesses, could repealing the law open the credit floodgates back up? Will big banks suddenly start making all the relatively meager loans that aren't very lucrative for them? Will the small banks that collapsed and consolidated during the financial crisis suddenly rise from the ashes?

Again, it's just not that easy. Just as Dodd-Frank isn't solely to blame for the shortage of business loans, repealing it won't magically make all of your business funding troubles go away.

"It's much more complicated," says Karen Mills, who ran President Barack Obama's Small Business Administration until 2013, and who remains a passionate advocate for increasing credit access to small-business owners. (A word to those seeking partisan bias in these divided times: The Senate unanimously confirmed Mills to her SBA role.)

"Increasing access to capital for small businesses, and getting rid of Dodd-Frank--it's not a one-to-one," adds Mills, now a senior fellow at Harvard Business School and the lead author of a comprehensive 2014 working paper on the state of small-business lending. A new version of that paper is due to be published at the end of this month.

Mills, like many other policy experts and analysts, is in favor of some financial regulatory reform, especially as regards the newer lending startups and other fintech companies targeting small businesses. "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," she says.

That's a far more nuanced proposal than "repeal Dodd-Frank." But as our country's next president is starting to find out, complex problems rarely can be solved by three-word solutions.

Published on: Nov 22, 2016