How The One Big Beautiful Bill Act Creates Commercial Banking Opportunities Too Valuable to Overlook

Oct 16

When President Trump signed the One Big Beautiful Bill Act into law on July 4, 2025, it fundamentally altered the economics of capital investment, debt financing, and business growth for commercial clients. Banks that act now will capture market share that will be difficult for competitors to displace later.

The One Big Beautiful Bill Act of 2025 (OBBBA) is poised to significantly reshape the U.S. commercial banking landscape, featuring a combination of tax reforms, regulatory changes, and incentives. The following is a breakdown of the key impacts on the commercial banking industry:

Key Provisions Affecting Banks

25% Interest Income Exclusion on Rural Real Estate Loans

Banks may now exclude 25% of gross interest income from certain qualified rural or agricultural real estate loans originated after July 4th, 2025. This benefits banks with strong agricultural lending portfolios, especially in rural markets.

The math is compelling: For a bank with a 21% corporate tax rate and $10 million in interest income from qualified agricultural loans, that 25% exclusion means $2.5 million is not taxable, generating $525,000 in tax savings annually.

Participating institutions can now price aggressively when 25% of qualified interest income is tax-free. This new exclusion creates opportunities to build relationships in communities abandoned by major banks, which target farm operations, agribusinesses with rural property, and rural commercial real estate owners.

Modified ACRE Act

A permanent exclusion of 25% of interest income from certain real estate loans impacted by the ACRE (Access to Credit for our Rural Economy) Act now precludes any sunset clauses and encourages long-term lending in real estate markets. This includes loans originating after July 4th, 2025, which are secured by rural or agricultural real estate, or a leasehold mortgage on such property that is substantially used for agricultural production, fishing or seafood processing, or an aquaculture facility.

Restoration of Full Bonus Depreciation

Banks can now fully expense qualifying assets (like branch improvements or equipment) placed in service after January 19, 2025. This reduces taxable income and encourages capital investment.

More importantly, this creates immediate loan demand. Commercial clients and prospects are now driven to reevaluate and recalculate every deferred capital project. Equipment purchases and real estate improvements that were unfeasible at 40% may become realistic at 100% depreciation.

Additionally, bonus depreciation not only drives loan demand but also enhances borrower creditworthiness. When businesses can fully expense equipment purchases immediately, they generate tax savings that improve cash flow. Better cash flow results in debt service coverage and lower default risk.

Permanent Expensing of Domestic R&D

Immediate deduction of domestic research and experimental (R&E) expenses is now permitted, which can benefit financial institutions investing in fintech, cybersecurity, or AI-driven services. For business clients, the OBBBA restored immediate expensing for domestic research and development (R&D) costs for small businesses with average gross receipts of $31 million or less. Additionally, any R&E expenses incurred in 2022-2024 that were being amortized can now be accelerated and deducted over one or two years.

Substantial tax refunds from retroactive deductions create multiple opportunities for these businesses, including bridge financing for pending refunds, working capital expansion as cash flow improves, and growth capital financing for previously cash-constrained businesses.

Section 199A Deduction Permanency

The 20% pass-through 199A or Qualified Business Income (QBI) deduction is now permanent, benefiting Subchapter S banks and their business clients. The vast majority of middle-market businesses are structured as pass-throughs. This permanence removes significant planning uncertainty and improves long-term cash flow predictability, translating into more stable borrowing capacity and better ability to service debt.

New Markets Tax Credit (NMTC) Permanency

Banks can continue using NMTCs to support investments in distressed communities. The OBBBA also made Low-Income Housing Tax Credits permanent and expanded LIHTC significantly, boosting the state housing credit ceiling by 12.5% for 2026-2029. In addition to the impact on lending, this legislation will affect CRA credits, community impact, and relationship banking with developers and nonprofits.

CFPB Funding Reduction

The Consumer Financial Protection Bureau's (CFPB) funding from the Federal Reserve has been reduced by almost 50%. This is the lowest funding level in the agency’s history, and it significantly curtails the CFPB’s financial resources for supervision, enforcement, and rulemaking. This may lead to a lighter regulatory touch, though the long-term effects are undetermined.

Strategic Implications for Banks

Interest Deductibility: Improving Borrowing Limits

The OBBBA has permanently restored the EBITDA-based calculation for business interest expense deductions. When depreciation and amortization are added back into the calculation, businesses with significant capital assets attain a significantly larger number, resulting in the ability to deduct greater interest expense.

This translates to larger loan sizes for the same borrower risk profile, better debt service coverage from the same cash flows, increased demand for debt financing, and more competitive positioning versus non-bank lenders.

How These Provisions Compound

Consider a manufacturing client contemplating facility expansion who can now fully expense equipment and qualifying structures, which creates more depreciation, which increases their adjusted taxable income. Higher income means they can deduct more interest expense. More deductible interest means better debt service coverage, resulting in improved lending opportunities.

These provisions compound. Businesses making capital investments improve their ability to service debt, which enables additional borrowing for more capital investment.

Dealer Finance Opportunities

The OBBBA brings back auto loan interest deductibility for consumers (up to $10,000 annually for 2025-2028 on new, domestically assembled vehicles). The real commercial banking opportunity is with dealership clients who need floor plan financing expansion, working capital lines, real estate financing, and treasury services as consumer demand increases.

Immediate Action Steps

The OBBBA created time-bound windows for many benefits. The sunset dates mean businesses can't assume these provisions will extend indefinitely.

Segment Portfolios by Impact - Identify businesses where multiple provisions create compounding benefits, such as capital-intensive manufacturers, real estate developers, construction companies, agricultural businesses, dealerships, and technology firms.
Launch Proactive Calling Campaigns – Business development officers can’t afford to wait for loan applications and should reach out to clients and prospects who postponed 2024-2025 capital projects to explain how restored provisions change project economics.
Update Underwriting Models - Reflect improved borrower cash flows from tax savings. Adjust debt service coverage expectations.
Develop Industry-Specific Packages - Create targeted financing solutions for construction equipment, manufacturing facilities, commercial real estate improvements, and agricultural lending.
Partner with Professional Advisors – A commercial bank’s role isn't to provide tax advice; it’s to identify opportunities and facilitate introductions to CPAs who can help businesses quantify benefits.

The OBBBA provides specific, timely, and relevant reasons to reach out to every business in the commercial banking vertical. It has created natural conversation starters that give banking leaders the opportunity to demonstrate an understanding of specific industries and their challenges. Most importantly, it creates opportunities where targeted financing solutions directly enable businesses to capitalize on tax benefits, allowing financial institutions to increase lending capacity and facilitate business growth.

The banks that position themselves as informed partners will capture a disproportionate share of commercial loan growth over the next five years. The window is open through 2029 for most provisions, and financial institutions and businesses that move first will get the best returns.