The Dodd-Frank banking regulations are now eleven years old and have been fully implemented by the government regulators. The impact of Dodd-Frank on the small business community, as we predicted in 2014 and 2018, has significantly reduced the amount of bank lending to small business owners. Small business loans from banks are only made available in small amounts assuming that the borrower is willing to pledge all of their business and personal assets to the bank. These loans generally range from $50,000 to several hundred thousand dollars and are highly dependent on the quality and value of the small business owner’s balance sheet. Loans of this size are generally sufficient for small businesses to maintain their existing operations, but during times of growth or expansion, these businesses will find these facilities lacking very quickly.
The small business lending void created by Dodd-Frank has been filled by third-party hedge funds and commercial finance companies like Capstone. These multi-billion-dollar hedge funds tend to lend to smaller business lenders who can aggregate and service a portfolio of small business loans and direct lending to larger operating companies where the loan size can be $50,000,000 or higher.
