The Big Story: Trump administration guts community banking program
The Trump Administration has taken another major step toward dismantling programs that support small businesses and startups by shuttering a key fund supporting community banks and local investment vehicles. This week, under the guise of the ongoing government shutdown, the White House eliminated the entire staff of the Treasury Department’s Community Development Financial Institutions (CDFI) Fund, a key source of support for entrepreneurs in underserved communities. This fund plays a vital role in giving founders—including those in rural and low-income communities—access to the capital they need to to build and scale small businesses, including startups.
Underrepresented founders are disadvantaged across the board when it comes to capital access, experiencing higher rates of denials, securing amounts lower than requested, and with higher interest rates. People of color are also more likely to be unbanked or underbanked, meaning many lack access to debt financing. CDFI funding is crucial in addressing these access challenges, and dismantling these programs risks pulling entire communities out of the startup ecosystem altogether. Community banks—and the funding that supports them—are crucial in leveling the playing field by expanding financial opportunities for founders who have historically been locked out of traditional banking systems. CDFI funds also support community development venture capital (CDVC) programs, such as Coastal Enterprises, Inc. (CEI) based in Maine, which uses CDFI funds to bolster economic development through microloans and equity investments in local startups. Without access to these crucial funding streams, entrepreneurs are left without the resources to grow, innovate, and create jobs in their communities.
The administration’s move to dismantle the CDFI Fund represents an attack on a long-standing, bipartisan program that has served as a lifeline for small businesses and community banks across the country. They benefit entrepreneurs of every background—from small-town farmers in rural areas to first-generation founders in low income communities—who all rely on access to fair lending and financial services to start and grow their businesses.Instead of eliminating programs that work, policymakers should expand access to capital, including easing requirements for federal loans, improving data collection on lending to underrepresented founders, and supporting CDFIs. One proposal, the Promoting New Bank Formation Act, would reduce barriers to help new community banks get off the ground. By making it easier for small and rural banks to form and serve their communities, this bill would expand local access to credit and strengthen the capital that entrepreneurs depend on. Policymakers need to prioritize the availability and success of community financial institutions if they want to support startups and small businesses across the country.
Policy Roundup:
Trump’s H-1B fee sparks lawsuit and renewed bipartisan interest. The Chamber of Commerce sued the Trump Administration this week over its recent decision to impose a $100,000 fee on high-skilled visa applicants, saying the President lacks the authority to unilaterally impose the fee. The administration’s actions on the program have reignited bipartisan interest in expanding and reforming the H-1B program, a key pathway for foreign talent that supports startups and innovation. Engine, and various members of the startup ecosystem have long called for improvements to the H-1B process to make it more transparent, accessible, and affordable for immigrant founders to bring their skills and ideas to the U.S.
California takes action on tech bills. This week, California Gov. Gavin Newsom (D) took action on several bills regulating AI and kids’ use of technology. Newsom signed SB 243, a bill designed to improve AI safety for children by requiring certain chatbot providers to periodically notify users that it is not human and take certain steps related to the content the bot produces. He vetoed a more expansive bill, AB 1064, saying it would “unintentionally lead to a total ban” on minors’ use of AI tools. He also signed an age verification law requiring device makers to send an age signal to app developers, putting the onus on developers to ensure content and features accessed by children are age-appropriate.
China developments renew trade uncertainty. China announced expanded restrictions on exports of rare earth minerals to all countries late last week, tightening access to critical inputs for technology components essential for innovation. The move prompted President Trump to threaten 100 percent tariffs on all Chinese imports and export controls on American software. The renewed tit-for-tat deepens trade uncertainty around and threatens to increase costs, disrupt supply chains, and complicate global market access for early-stage companies.
Supreme Court declines to revisit Internet platform law. In recent weeks, the Supreme Court has declined to hear three cases that could have opened up Section 230—a critical legal framework that enables internet platforms of all sizes, especially startups, to host content and build online communities—to reinterpretation. Section 230 helps startups by limiting potentially ruinous legal costs, allowing startups to focus their limited resources on building and maintaining their platforms.
On the Horizon:
TUE. 10/21: The Senate Committee on Commerce, Science, and Transportation will markup legislation including the Global Investment in American Jobs Act of 2025 at 10:00 AM ET.
Startup Roundup:
#StartupsEverywhere: Rochester, N.Y. Julia Somerdin is the founder and inventor of Labby, a Rochester-based startup providing diagnostic hardware and software for dairy farmers to improve the quality of their herds’ milk. We sat down with Julia to talk about her company, how she has benefited from government grants supporting innovation, the impact of tariffs on American tech companies, and more.
