The Basel III rule would hamstring small businesses like mine

Natalia Deriabina/nataliaderiabina - stock.adobe.c

For many small-business owners like me, accessing the capital we need to sustain and grow our operations has never been more challenging. Interest rates have jumped at a record pace to 20-year highs and lending has tightened in the Federal Reserve's ongoing effort to curb inflation and reduce demand.

Now, adding to that one-two gut punch, the Federal Reserve is proposing a new regulation known as the Basel III endgame. These rules would exacerbate this already difficult situation by making it even harder and more expensive for small-business owners to secure the funds we need to operate.

On January 18, 2024, I had the opportunity to testify before the U.S. House Small Business Committee on small-business owners' difficulty accessing capital and how Basel III endgame would make matters worse. While many in the halls of Congress would call my business the epitome of the American Dream — we have experienced consistent growth as our dessert bars are now in major retail stores like Target and Whole Foods — I shared with policymakers the stark reality: Lenders regularly label me and other small businesses as too risky and limit our access to capital. These circumstances have required me to use personal savings as well as sell equity in my company in order to raise capital.

This capital crunch is keeping small businesses from reaching their full potential and policymakers must understand that the Federal Reserve's proposed Basel III endgame will only further squeeze small businesses by tightening an already difficult lending environment.

To say that consideration of Basel III comes at an already precarious time for small-business owners would be an understatement. A recent survey of small-business owners conducted by Goldman Sachs, "10,000 Small Businesses Voices," found that access to capital is a top challenge.

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More than three quarters of small-business owners surveyed in January 2024 say they are concerned about their ability to access capital, a sharp change from April 2022 when 77% said they were confident about credit. And 86% say that a tightening capital market will compromise their plans to expand — and could lead to layoffs or business closures.

That's why small-business owners like me are so alarmed at the prospect of Basel III capping our nation's creative and entrepreneurial wellspring. Making it more expensive for banks to lend to small businesses, and no doubt expecting owners to shoulder those pass-along costs, will hobble our ability to survive and grow, innovate and compete.

If enacted, this rule would not only cut off many small businesses from accessing the capital they need to grow, but it will push small-business owners to predatory lenders because they'll have no other choice. Alarmingly, the same survey of small-business owners shows small-business owners turning to predatory lending amid the capital crunch is already beginning.

I come from a family of entrepreneurs and have seen firsthand the consequences of predatory lenders. It's simply unconscionable.

While the public comment period for the Federal Reserve's proposed rule might have closed, it is crucial that policymakers call on their own can-do American spirit to recalibrate policy that ensures our nation's small businesses can grow and succeed.