Though today's economy is positive for most business owners, existing regulations may be hampering further opportunities for growth, according to a survey conducted by the U.S. Chamber of Commerce's Center for Capital Markets Competitiveness (CCMC).
Released today at the start of the 13th Annual Capital Markets Summit in Washington, D.C., the Financing Main Street: The State of Business Financing in America survey polled more than 300 corporate finance professionals about their businesses' financial needs and how regulations have impacted their access to capital.
The survey grouped businesses based on their size, with small businesses defined as having less than 250 employees, midsize companies having 250 to 999 employees and large companies having 1,000 employees or more. Most of the companies that participated had operations in the U.S., while others operated in areas like Canada, Mexico and Europe.
"The way we measure whether our financial regulations are working is whether entrepreneurs of every size and shape in the country ... have access to the financial products they need to grow, start and expand their business," said David Hirschmann, CCMC president and CEO.
Today's survey is the third of its kind, with previous versions being conducted in 2013 and 2016. CCMC Executive Vice President Tom Quaadman said those dates hold special significance, since the first survey took place during the early stages of regulatory measures like the Dodd-Frank Wall Street Reform and Consumer Protection Act and Basel III. The subsequent surveys looked at how regulations impacted American businesses.
While the economy has been steadily gaining steam since the recession of 2008, Quaadman said regulations have become a stumbling block for certain business owners. "Overall, banking regulations and capital requirements are harming the ability of businesses to access financing – primarily middle-market companies," which Quaadman called "an important driver for growth in the economy."
Cash management and business financing
Officials at the Chamber of Commerce said that American businesses rely on the U.S. financial system for a range of financial needs, including short-term credit, long-term loans and derivatives transactions. According to the survey's findings, most businesses use "one to three financial institutions" but have either "reduced or substituted the number of financial institutions used since 2016" because of regulations.
Regardless of financial regulations coming out of Washington, Hirschmann said a majority of businesses were largely positive about their financial prospects in the near future, though that optimism came with a caveat.
"First and foremost, we found a lot of optimism within a business surrounding the way they're handling their own financial means and their ability to grow their business, though there's some growing concern about the macro environment," Hirschmann said.
Approximately 58 percent of respondents said they were better able to handle their cash operations since 2016. Forty-five percent of respondents said they were more able to obtain short-term credit, while 31 percent reported no change in this area. However, nearly 20 percent of business owners said they were finding it harder to raise equity from public and private markets.
Regulations impacting Main Street businesses
Recent efforts by Republicans to reduce the impact of Dodd-Frank, as well as the passage of the Economic Growth, Regulatory Relief, and Consumer Protection Act and the 2012 Jumpstart Our Business Startups (JOBS) Act could explain some of the growing optimism among business owners.
However, CCMC officials said respondents felt that existing regulations posed a challenge to their businesses. Among the survey's participants, 82 percent said they had taken some form of action as a result of changing bank regulations. That figure is up from 61 percent in 2013 and 79 percent in 2016.
Additionally, 45 percent said they have been absorbing higher costs as a result of regulation, while 27 percent said they opted to charge more for their goods and services as a result. Sixty-six percent also reported that rising bank capital charges have brought on higher costs or challenges, which is up from 50 percent in 2016.
The middle market's case for "regulatory recalibration"
Officials said that the businesses owners they surveyed want changes to existing regulations that will make their financial lives easier.
Forty-two percent of the middle market companies that reported being affected by regulations said their ability to access capital was "negatively impacted." Another 31 percent said audit standards from the Public Company Accounting Oversight Board adversely affected them, as opposed to the 20 percent of large companies who responded the same way.
Roughly 20 percent of middle-market companies expect their financial performance to worsen in the next year, and 39 percent said they expect the economy overall to take a downturn.
Worried that these companies are stuck in a "regulatory no man's land," Hirschmann said this study should serve as a wake-up call for changes in Washington.
"We are not arguing against regulation," he said. "We are just trying to make the argument that the banks shouldn't be about more or less regulation – it should be about getting regulation right."
Quaadman said the Chamber of Commerce urged lawmakers to closely study consider the impacts of proposed banking regulations before their passage. He hopes that lawmakers will heed their words the next time regulations are drawn up.
"We're now seeing what the impacts are on the customers of banks, and we think that this is a good time that some of these need to be corrected," he said. "In the future, we would hope that banking regulators would be more forward-leaning and use economic analysis and cost-benefit analysis to understand the problems before we have to look at surveys three or five years after regulations have been implemented."