Why digitalization will transform the small business economy under Trump

Each time a new president is inaugurated, he brings with him a new perspective and the promise of change. This will be the case in less than a week when Donald Trump returns to the White House. The former president and billionaire businessman campaigned on “fixing the economy” and promises to refocus attention on American energy, deregulation and a pro-business atmosphere.

“Washington is open, and the United States economy is open. The era of post-financial crisis regulation, legislation and policy is over,” said Patrick McHenry, former congressman from North Carolina. North and Chairman of the House Financial Services Committee. in his opening speech at the Conference on the frontiers of digital finance at the University of Miami on Tuesday, January 14.

McHenry expects the Trump administration will work to reduce spending and the national debt to help get the country back on track financially. The president and his team will have a lot of work to do, following a Treasury Department Report that the US budget deficit reached a record high of $700 billion in the first quarter of the fiscal year, compared to $510 billion in the same period last year, an increase of 39%. Total expenditures were $1.8 trillion, while revenues were $1.1 trillion, resulting in a deficit of $700 billion.

Among the spending: The government spent $308 billion on debt interest in the first quarter of fiscal 2025.

· Spending increased 41 percent ($9 billion) at the Department of Homeland Security, with most of that due to FEMA spending on hurricane and disaster relief.

· Department of Veterans Affairs spending increased 13 percent ($11 billion) due to an expansion of veterans’ benefits.

· The EPA also spent an additional $21 billion this year to promote its greenhouse gas reduction funds, and

· Social Security costs have increased 6% so far this year.

“Without structural changes to how we spend money in Washington, we will face serious consequences,” McHenry said. “The last time we had a complete overhaul of our federal government was in 1920. We have a federal government that is beyond our ability to fund it, given its current size.

He also believes that digital finance will play an important role in addressing the country’s financial challenges.

“If America is to stay on top of its economic game, we must catch up with the pace of digitalization of our world,” McHenry said at the FDF conference. “We need to ensure we are equipped to deal with changing formats, particularly in financial services, with the deployment of artificial intelligence.”

Benefits of digitalization of finance

Digitalization has revolutionized small business financing by expanding access to capital and streamlining the process. In the pre-digital banking world, not long ago, small business owners looking for financing had to go to banks, sit down and meet with a loan officer, fill out lots of paperwork, and then hoping to get approval, which often could be the case. take weeks to get it – if at all. The experience could be intimidating and frustrating, especially for minority entrepreneurs who faced language barriers or who may not have much experience dealing with the U.S. banking system. If a loan application was declined, the business owner had to go to another bank and repeat the experience.

The ability to apply for financing online and submit supporting documentation, such as bank statements, income statements and tax returns, via computer or smartphone has made obtaining capital easier and more practical than ever. In fact, submissions are often made at night or on weekends, when business owners have more time but bank branches are closed. Lenders who have adopted technology have begun using algorithms to evaluate applications faster than ever, reducing approval times from weeks to days – and sometimes even just hours.

Banks, especially large institutions that often catered to their own customers, often had strict lending parameters and were less willing to take risks. That opened the door for smaller banks and nonbank lenders willing to give money to borrowers who might not meet the tougher lending standards of big banks. Alternative lenders have been willing to provide capital to borrowers that traditional banks have turned away. This is how financial technology (financial technology) expanded access to capital.

Related: Increased Fintech and Banking Partnerships Will Benefit Small Businesses

Digitization and artificial intelligence (AI) takes small business financing to the next level

Today, artificial intelligence (AI) has transformed the credit industry by enabling faster, more accurate and more efficient decision-making processes. AI can analyze large amounts of data, including credit scores and data such as utility bill and rent payments, to determine the creditworthiness of a potential borrower. AI goes beyond credit scores and looks at spending habits, transaction history and behavioral data to predict a borrower’s likelihood of repayment, the top concern for any lender. By analyzing numerous data points, AI allows lenders to assess risk while potentially helping borrowers with poor credit history gain traction. access to capital.

AI makes lending more efficient because it can use inconsistent or suspicious data to flag fraudulent applications. Additionally, optical character recognition (OCR), a technology that converts images of document data – such as pay stubs and tax returns – into a machine-readable format, speeds up the application review process. . Because AI algorithms can analyze the credit risk of loan applications almost instantly, decisions are made faster and with less labor than ever before. Additionally, AI can calculate credit limits and provide tailored loan offers based on a company’s most recent financial activity.

Naturally, AI has raised some concerns about displacing jobs in the short term, but in the long term, AI can be a tremendous creator of jobs, new markets, and new opportunities.

“We are going to be able to do things in a decade that we could never have imagined. In the long run, it’s a win,” McHenry said. “I’m optimistic about the deployment of AI… It’s a game changer.” America is competent enough to exploit these opportunities and to be at the forefront of deploying and distributing AI systems, especially in our most regulated spheres.

Related: How small businesses might fare in the face of a Trump presidency

President Trump has demonstrated his focus on government efficiency by putting Elon Musk and Vivek Ramaswamy in charge of DOGE, promoting American businesses, and supporting technological advancements, such as cryptocurrency and the digitization of consumer lending. businesses. Reducing the national debt will be a daunting challenge, but it could lead to lower interest rates, expanded access to capital and economic growth.