The Changing Role of Small Business Ownership

Joyce Klein  00:05

Good afternoon, everyone. Welcome to the Aspen Institute. I’m Joyce Klein. I’m a Senior Director here at the Aspen Institute. I lead our Business Ownership Initiative, which is part of the broader Economic Opportunities Program here at the Aspen Institute and I’m delighted to welcome folks here today. I’m really excited for today’s event. There was a ton of great conversation even before the event started. Sorry to break up some of the conversation that was happening outside, to get to our conversation today, but we do have ample time for a networking break, and so really looking forward to having a really rich conversation today. So, so it’s my pleasure to welcome you to today’s event and to the Aspen Institute. The title of our event today is The New Era of Small Business Finance: Access, AI and Accoutability. This is the second event we have convened in partnership with the Responsible Business Lending Coalition, and of which the Aspen Institute is a founding member. And our topic today really reflects the mission of the Responsible Business Lending Coalition since its since its inception, which is to support the development of a small business lending market that is innovative, accessible and also fair and responsible. And you know, our vision is that the small business financing market is constructed in a way that first and foremost benefits small business owners, because we really think of finance as a tool to achieve a greater end, which is a small which is, sorry, a strong and robust and growing small business sector in our country. So today we want to, we want to talk about innovation. We’ll talk about AI, because how can you have a conversation today without talking about AI and but also, more broadly about innovation and about fairness in the small business lending market. And in a minute, I’m going to introduce Louis Caditz-Peck who will give you an overview and speak to you about the work of the Responsible Business Lending Coalition. But first, I just wanted to share a bit about how this connects to our work at the Aspen Institute and the Business Ownership Initiative. 

Joyce Klein  02:21

Our work here at the Institute in this space focuses on expanding economic opportunity in the US through business ownership. And for decades, we’ve been working on this issue, which is really focused on the entrepreneurs in the US who face the greatest challenges in starting and growing businesses. And how do we help them get access to the resources that they need, including financing that really helps them to start and grow their businesses. And at the Aspen Institute as a whole, we focus a lot on the role of dialog and action, particularly among and across sectors of our society and sectors of our economy and how we bring folks from across the spectrum of our society together to talk about and identify principles and practices and policies that move us towards a more free, just and equitable society. And so the work of the RBLC, which is really very principles and practice based, but also is cross sector in nature really fits squarely within the way the Aspen Institute approaches our work. So with that, I’m going to bring up Louis Caditz-Peck, the Executive Director, little feedback there of the Responsible Business Lending Coalition. I’m going to say a few words about Louis, and then you can come up. Louis has been central to the work of the RBLC since its founding. He has a background in FinTech, in bank in CDFIs and in nonprofit advocacy organizations. Started his life as a small business lenders, lender at Self Help Credit Union, which is a community development financial institution, then went institution, then went to Lending Club, where he helped stand up their small business lending program. Did some really innovative partnerships with ACCION Opportunity Fund to create a partnership between those organizations that was really innovative. And through that work, both as originally a member, a founding member a founding member of the RBLC, and now is the executive director. Has just been a central and a passionate advocate for the work of the coalition. So thank you Louis, and come on up. I’ll let you say some words.

Louis Caditz-Peck  04:35

Welcome everybody, and thank you so much. Joyce and Aspen Institute Economic Opportunities Program for hosting this event. We’re here today for a conversation about the future of the small business economy and small business financing system, and we’re going to hear from small business lenders and technologists, from nonprofit organizations and CDFIs and economists and small business owners themselves. And I think what we’ll find is that across these differences, there is so much that we learn from each other and so much that we agree on. And that is one of the ideas that animates the Responsible Business Lending Coalition, the recognition that small businesses and small business lenders and nonprofits to work with small businesses can accomplish amazing things when we come together, learn from each other, learn where we can agree and where we can act together, and that we need to work together and act together right now, if we are going to have a small business financing system that continues to work, that builds wealth, that creates a middle class, and the first panel of the day is going to focus on what’s happening in the small business financing economy. Another part of the idea that brought together the small business, the Responsible Business Lending Coalition was this recognition that we have a greater opportunity than ever before to address the gap in access to responsible capital that small businesses face. And technology is creating ways that it can be more efficient than ever before to lend at the sizes that main street businesses need, 200,000 20,000 and so the second panel of our the day is going to focus on those kinds of innovations and I’m excited for that. And the another part of the conversation that brought together the groups that formed the responsible business lending coalition, as we were talking about this great promise, all of these organizations for profit, nonprofit small business were finding that any conversation about what’s happening in small business financing today would inevitably also start to turn towards a discussion about how something has gotten off track and organizations among the 700 members of the National Community Reinvestment Coalition, we’re finding that increasingly small businesses in the community are struggling under financing that is far beyond their ability to pay, charging prices that they can’t really afford and weren’t disclosed to them and setting them up to fail. And ACCION Opportunity Fund, the largest nonprofit lender to small businesses, studied this and looked at what small businesses they were working with or paying, found that on average, businesses like this were paying other lenders undisclosed APRs of 94% and as high as 350% and in some ways even more troubling, that the average payment amount that businesses were being charged was double what they could actually afford to pay and Opportunity Finance Network, the industry voice of CDFIs was finding that increasingly, CDFIs are becoming for in small business lending, a sort of emergency room for the small business economy, and spending their resources increasingly helping small business owners who have been knocked down by this kind of financing get back up, instead of being able to use those resources to help small businesses get ahead. And the for-profit lenders that came into this were also saying, this needs to stop. We need a solution here, because when there are companies in the market that are competing by taking unfair advantage of small businesses and of customers that can create a race to the bottom in a market. And that is, it’s bad for competition, it’s bad for trust in the financial system, and it’s bad for the innovation that we all want to see to be able to rise to the top. And so we also have had investors like Community Investment Management, with over a billion and a half under management, invested in this kind of innovation, who are saying, what can we do to help shift the dynamics of the market so that the best ideas and most helpful innovations can really rise to the top? And also, thank you Community Investment Management for sponsoring this event, and small business groups like Small Business Majority, we’re seeing this too, and seeing so many of the 85,000 businesses that we represent are struggling right now and need help, and we should do something about it.

Louis Caditz-Peck  09:17

And so we came together to do that, first here at the Aspen Institute, and what came out of that was the Small Business Borrowers Bill of Rights. This is a set of industry standards for what responsible business lending looks like, drawing on this consensus of bringing together for profit lenders, nonprofit organizations and small business groups, and it focuses, as Joyce was describing, on the practices that constitute responsible lending, 24 specific practices that are organized into six rights, like the right to transparent pricing in terms the right to responsible underwriting and so on. And that’s moving the conversation forward beyond ideas just simpler questions, like, is it online or offline? Is it bank or non bank? Is it a merchant cash advance or loan? The important thing is, are the practices responsible? And once we identify like that, what we’re looking for, then we can help achieve it, and that is what we’re doing. So far, over 100 organizations have signed on as signatories and endorsers of the Small Business Borrowers Bill of Rights, saying we adhere to these standards, and we think this is the right thing for the market. If you’re in the room and are a signatory or endorser of the Small Business Borrowers Bill of Rights, I just want to invite you to raise a hand and be recognized for that, all right. And increasingly, legislators started coming to us and saying, small businesses that are my constituents, are encountering this new kind of problem, and they’re looking for solutions. How do we pass the Small Business Borrowers Bill of Rights into law? And so to date, nine laws have come out of the responsible business lending coalition’s work, state and federal. Last year at this event, it was really exciting to hear Federal Reserve Governor Michael Barr speak, and in his speech, call on banks and small business advocates and industry stakeholders to come together and support policies that advance these kinds of solutions, like the sorts of small business truth and lending laws that the responsible business lending coalition has helped to lead. Prior to that, before Governor Barr joined the Federal Reserve, he had he gave a speech at the launch of the Small Business bars Bill of Rights, where he described how the practices that we are increasingly seeing in small business financing, to him, resemble a lot of the practices that we saw in small business mortgage, pardon me, in subprime mortgage lending in the lead up to 2008.

Louis Caditz-Peck  11:58

And so it can seem pretty dire, it can but it’s also hopeful, because small businesses create hope, and I think that’s part of what draws so many of us to small businesses. Small business ownership is one of the three ways that Americans build wealth, the other two pathways being education and home ownership. And each one of these pathways of economic opportunity in this country is becoming more expensive and more out of reach. And for me, from my family, small business ownership is the pathway that my family took. My grandmother grew up really, really poor in Chicago. She was the daughter of an immigrant taxi driver, single dad, and that kind of childhood made her very tenacious, and she, with that tenacity, decided that she was going to become a small business owner to create more opportunity for herself and for her family, and she started preschools. And so I grew up like, I think so many people in the room that have that kind of personal connection to a small business. I was a handyman and a payroll clerk and a preschool teacher and her, yeah, it’s true, her success as a small business owner is what created the family economic mobility that is what put me and so many of my cousins through college. And so our work here today is to create and protect that kind of opportunity and that kind of hope for everybody here who has a personal connection to a small business, and for everyone here who wants our country to be a place where people can start a business and be able to buy a home and send their kids to college and live with more opportunities than their parents had, and be able to create more opportunity for their children than they had. So let’s figure this out, and with that, let’s welcome to the stage our first panel.

Joyce Klein  13:56

Now you can really hear me. Okay, wonderful. Thank you. So we’ve seen we I think we all believe and understand that small businesses are really central to American prosperity, and we want to see them thrive. And over the past couple decades, we’ve seen some really interesting things happening in terms of general patterns in small business ownership. Most recently, we’ve seen a really significant increase in the number of new business formations, which is interesting because it was going down for a while. We were seeing that declining for a while, but we’ve seen some spikes since Covid We’ve seen a lot of shifts in demographically, what business owners, what folks who are starting businesses, what they look like or who they are, and we’ve also seen technology really facilitating the ability of folks to start and formalize their businesses. So those are all really important trends. And of course, there’s a lot that’s course that’s happening in our economy, that it’s also affecting what’s happening in small businesses. So we really wanted to start by talking about, like, what do we know about what’s happening with small businesses right now? Because that obviously sets the stage for what we need for in terms of financing to support those those businesses. So I’m going to start by having our panelists introduce themselves. I’m going to start with Tim to my far right. Tim, you lead the Financial Access Initiative at NYU Wagner School, and you’ve done sort of at FAI. You’ve done, like, extensive work on how people connect to financial systems. So tell us a little bit about your work and what drove you to focusing on small business ownership and entrepreneurship.

Tim Ogden 15:29

Hi, everybody. Thanks Joyce for having me. As Joyce mentioned, I’m the Managing Director of the Financial Access Initiative at NYU. For these purposes the most important thing about me is I’m running a large, multi year multinational project called the Small Firm Diaries, where we use financial diaries, methodology that combines quantitative and qualitative data, high frequency quantitative data to follow small businesses for more than a year and really understand what’s happening in those businesses financially, but also the whys. Why do the numbers look like they do? What is happening to you versus what you are making happen, kind of questions that we really want to understand, and also doing that from the perspective of the workers in those businesses. The reason we’re doing that is about 10 years ago, we did a big project here in the United States called the US Financial Diaries, tracking the lives of households living at or near poverty line in the United States. And part of that process for me, was realizing how important small businesses were in those the lives of those households. And I didn’t understand how the businesses worked, how profitable were they, who owned them? What were the jobs like in them? Who was working in those jobs? Where were they coming from? So we were seeing the impact of these small businesses in the household level. But, you know, it opened up this question, and so with support from the JP Morgan Chase Foundation, from the MasterCard Center for Inclusive Growth, for the Aspen Economic Opportunities Program, for the last year or the last six months, we’ve been doing this in the United States. We’re at halfway through this project called Small Firm Diaries USA, trying to understand how do small businesses, small employer businesses, and that is a really important part of this whole conversation, of like, when you use the word small business, what do you mean? Because people mean radically different things. I was just presenting yesterday in Baltimore, have this slide according to the SBA, the one woman coffee shop and the 499 employee health care business that’s highly regulated and professionalized are the same thing, and they are not. And so we are trying to focus on this segment of small business and try and better understand what’s underneath the covers there. And I think it’s really critical to understanding, as you were saying in your structure, Joyce, how much are these businesses able to build wealth? How much are they able to create good jobs? What are the barriers to them? What is the role of finance in preventing or enabling that and all of the other things we see changing?

Joyce Klein 17:59

Thank you, Tim, so I’m going to go to Rebecca next. Rebecca, you’re the owner. You’re our small business owner on this panel. We’ve got another one coming up later, but the owner of a really cool business called Princess Awesome. So tell us about your business and your journey. How’d you get there? Why are you doing this?

Rebecca Melsky 18:16

Hi. I’m Rebecca Melsky. Thank you so much for having me today. I’m the co founder, this is very loud. Not used to this. Sorry. I’m the co-founder of a company called Princess Awesome in 2013 my daughter, who is now almost 16 years old, she was two, and all she ever wanted to wear were dresses, and the twirlier the better for her. And I was very frustrated that in the clothing stores at that time there were no twirly dresses that had all of the themes that were also offered on boys clothes. There were no dresses with trains or trucks or dragons or math or science, and I kind of got in my head like, why isn’t there a twirly dress with the dinosaur? And I asked my friend Eva if she wanted to start a business with me, and she said yes. And so we we ventured into the world of apparel manufacturing. We started just making stuff by hand. We ran a Kickstarter campaign. From there, we started manufacturing, both in the United States and then abroad. And we are now an exclusively ecommerce clothing store manufacturing in countries all over the world. So we’ve been operational as, like a real business. I mean, we started in 2013 but it’s been about 11 years that we’ve been running our our online store.

Joyce Klein 19:37

And finally, I’m going to Ryan, I’m going to ask you to introduce yourself. Ryan Decker, you lead the Industrial Output Section at the Federal Reserve Board of Governors, and your research is focused on business dynamics and firm level data, right? So tell us about your work and why it matters for understanding small businesses.

Ryan Decker  19:56

Okay, yeah, so I’m Ryan Decker. I need to start with a blanket disclaimer. I work for the Fed. My comments today do not necessarily represent the views of the Federal Reserve System or Board, but I do research kind of on the side, and I research in a field that’s called business dynamics. I’m a macro economist by training. And when you when people think about macro economics, they usually think about big aggregates. They think about GDP, interest rates and unemployment rates. And if you spend too much time thinking that way, you can be tempted to start to think of the economy as like one big company. And there’s this old quote by the CEO of General Motors who said, what’s good for General Motors is good for America, and that’s one way to think about things. But actually, I think what the data would suggest is that there is enormous variation across businesses and the interests of GM, they’re sometimes aligned with other businesses, sometimes they’re not including GM zone suppliers, let alone a Silicon Valley startup or an apparel e commerce business or a bakery in Denver. Different businesses are different. Younger businesses are different than older businesses. Smaller are different from larger and even among small, a 499 employee business is very different from a 10 employee business. And so I’ve spent my career studying differences across businesses, and in particular the life cycle of businesses. Businesses start, they grow, sometimes they contract, they decline, and trying to make connections between that and these broader macroeconomic questions is kind of what I do. Thank you.

Joyce Klein  21:33

So, let’s talk a little bit about the surge that we’ve seen in new business formation, and maybe what do we know and not know about what’s driving it? So Ryan, I’m going to come back to you first, because this is something that you’ve really been studying and writing about for a while. So tell us. What can you tell us about, what’s happening in terms of new business formations and maybe, like, what under what can you say about what underlines that the headline date is that we’re seeing all these new business formations. Yeah.

Ryan Decker  22:02

So, the first bit of context is, as Joyce mentioned at the beginning, prior to the pandemic, we had seen basically a 30- or 40-year decline in rates of new business creation, and it varied a little across industries and geography and so on. But this was a big story, and just some some numbers on it. In the 1980s in a typical year, brand new firms would have accounted for something like 4% of employment. By 2019 it was less than 2% of employment, and this really shows up in the size distribution. So firms with fewer than 20 employees went from being about 22% of employment in the 80s to around 17% of employment in 2019 there was this big decline, and lots of research went into trying to figure this out, but a lot of people were very worried who had followed the evidence here. And then, if you fast forward to the pandemic, one of the most surprising to me things that happened in the middle of 2020 is we saw in various indicators, an enormous surge in measures of new business creation.

Ryan Decker  23:01

And this is hard to measure in real time, but we have some things like applications for new employer identification numbers, which was a fairly new statistical product at the time for the public, just went crazy. It reached an all time high in July of 2020, and various measures of new firm creation have remained pretty elevated since then. And so if we think about new employer firms, the number of new employer firms being created per year is about four. 15% higher over the last few years than it was prior to the pandemic, and we even saw small firms share of the economy tick up a little bit for a while. All these amazing stories, and I think we don’t fully understand what’s going on here. There’s a lot of measurement questions. There’s a lot of challenges here, but we have identified a few interesting patterns that I think are very pandemic stories. One is that if you look at big cities historically, and typically, most of the new business formation in a big city is happening in the middle of the big city. It’s happening in downtown areas. We saw the opposite pattern in the pandemic, and so we saw much more business formation out in the suburbs and the periphery of the city than downtown. And you can probably guess some reasons for that. We found it’s highly correlated with remote work. So it could be that businesses like restaurants and dry cleaners and coffee shops and gyms want to be closer to where the people are during the day, and so we saw this move out of the city center. We saw a lot of business formation in the same areas of the country, even down to the county, where we saw a lot of people quitting their jobs. So there was a story in the pandemic that people called the Great Resignation. There was this enormous surge in the rate of people quitting their jobs. We find that happened in exactly the same places that lots of new firms were formed. And so it would suggest that maybe a lot of people quit their jobs and went to new businesses, either as founders or as early employees. And by the same token, people quitting their jobs was probably an important source of labor supply for these new businesses that we saw founded. And then finally, we saw some very pandemic industry patterns. We saw a rise in in business formation, in online retail, in some of the transportation industries that move goods to people’s houses. And then also we saw some some interesting things in high tech. I think we might talk about more a little later, and the high tech data appear to be remaining pretty elevated even till now.

Joyce Klein  26:5125:17

So thank you so so Tim. I’m going to come to you next because as part of your work on Small Firm Diaries, you spend a lot of time sort of trying to understand, what do we know about small businesses generally, and looking at a lot of different research sources. So what are your thoughts about what might be driving new business formations?

Tim Ogden  27:1125:37

Yeah, and one thing I would say start is, no matter how much you think, you know, it’s less than you do. Because we have this tendency in this day and age to think there, there has to be good data, right? And so we assume what data out there is good and complete. And as you start peeling back the layers, you realize a whole lot of our data infrastructure is 30, 40, 50 years old for important reasons, because we need continuity, but that then makes things sort of tough to keep up with all the changes and all this. And so, you know, we like to only change one thing at a time, so we can try and figure out, like, what’s causing which change, but so much is changing simultaneously. And I think about the old, you know, the famous quote you hear everybody talking about in AI now too, is the, you know, we see the effect of the internet everywhere, but in the productivity statistics, I think we’re still seeing some of the effect of the internet in this change that it took Covid to push a lot of people out to the those tools are there, but I was in a fairly comfortable place, and starting a business is risky, and I need a nudge. One of my most referred to facts is that the most likely predictor of small business success is being a laid off middle manager. Right? They are not people who had a dream of starting a small business. They’re people who lost their jobs, but know how to run a business, and they tend to start businesses when they get laid off, and they tend to be more successful than average because they know what they’re doing, I think so that’s some of what we’re seeing is these, the compounding of this economic effect of Covid, the change in a lot of technology that enables more people to actually realistically think about but also seeing this thing of it’s easier to get information about how to do this than it ever has been before. The people who might have started a sole proprietorship or not even gotten an EIN now have access to a very easy to follow set of instructions and do online, to go through that process and become an S corp when they may have in the past, started as a sole proprietor and then converted years later. And that changes are the way we measure things because of the way we have to measure things, and so I think there’s a whole lot going on. What I don’t see is a huge change in people’s motivations, based on what we’re seeing when we talk to small businesses. The story Rebecca was telling was I wanted to create something, and I wanted to make a difference for the people around me, and I thought the best way to do it was by starting a business. And when we talk to the businesses in our cohorts, like the motivations for the businesses that are 10 years old and the businesses that are three years old, small sample, not representative, but it’s not changing. What, what’s changing is, I think of people’s ability to do some of the things that were harder, that also changed when they show up in the statistics.

Joyce Klein  28:33

So Rebecca, I wanted you to speak a little bit about you talked about starting your business because you saw an opportunity in the market, but what are the other reasons that you’ve chosen to stay with your business or continue to run your business?

Rebecca Melsky  28:46

So before in my past life is what I say. I was a teacher, which I really enjoyed, but it’s a very rigid schedule, right? You have to be there in person. And I had two small kids when we started, Princess Awesome. I was on maternity leave with my second, who just turned 13 when I first had the idea for it, and being having a flexible schedule just wildly changed my life and my family’s life. I don’t think we would have had our third kid if I hadn’t started Princess Awesome, and we like him a lot. So that’s good. It’s it has allowed me to have just, I mean, it’s been really, truly life changing to have, like, be my own boss, and to do something that feels, you know, important. I know we’re not, we’re not changing the world entirely, but we’re giving people something that they want, that matters to them, and to do it with someone who I, you know, my business partner, who’s also one of my closest friends. So that’s why we’ve stuck it out, even though it’s hard and not, yeah, not always, not always easy, right?

Joyce Klein  29:55

So thank you for sharing that, because I think it’s like, it is a very common motivation for why people move out of out of employment, into self employment and business ownership. So Rebecca, I’m going to, I’m going to stick with you and because, and let’s get into this conversation about how technology is changing small businesses, because your business is really, even though it’s not as new as some of the ones that we think may be driven by changes in technology, it really is a technology centric business. So tell us about why technology is important.

Rebecca Melsky 30:22

Absolutely. I mean, so our our store is run through Shopify, which makes a platform, which makes having an e-commerce Store very easy, which, I mean, my business partner has some web development background, but we couldn’t have built our own store, right? That was a platform that we needed. And then as an e-commerce store, where you’re not getting foot traffic, you are super reliant on the big tech giants, and it is a blessing and a curse, because we would not exist if it weren’t for Facebook. And I also hate that we are giving Mark Zuckerberg a ton of money every day. And you know, whether it’s Facebook or meta, excuse me, or Amazon or Google e commerce stores in particular. I imagine that’s the same for other service based industries as well. But you are you have to pay somebody for traffic or a platform to sell your stuff, like, to get the eyeballs behind the internet. You are reliant on these, on these platforms, and so the technology enables that to happen. We wouldn’t have been able to have an e-commerce store in 1996 probably, but then you are beholden to the algorithms and whatnot.

Joyce Klein  31:41

So thank you. So Ryan, I’m going to come to you next, because you, as you mentioned, you’re you saw evidence that some of this new business formation is happening in technology oriented businesses. And what more can you tell us about those businesses? What What size are they? What are their parts of the tech sector like? Is it changing? Who’s becoming a business owner?

Ryan Decker 31:59

So it is true. A lot of the surge we’ve seen has been in in high tech industries, and that’s especially true like over the last year or two, some of these other industries, the surge seems to be cooling down a little bit. We see a ton in high tech. We see them in what’s called the information sector, that’s where we make software and do networking and data hosting. We see them in the scientific and technical services sector, where we have things like R&D services, computer systems design. Early on, we thought maybe some of this was related to opening businesses to help other businesses transition to work from home or transition to online retail. More recently, it very well could be AI related stories, whatever that means. The literature, the academic literature, would echo what Rebecca just said, which is that an industry that is software intensive is an industry that businesses can get into. It changes the entry cost. This Shopify example really resonates. It changes the entry cost, and it makes it so that businesses can actually get in. And you know, with more and more AI, there was a Wall Street Journal article this morning where someone said it’s democratizing invention. I don’t know if that’s true, but you could imagine some industries that previously were not so software intensive could become more software intensive, and that could change some of the entry patterns in those industries. And the you know, in terms of predicting what happens, it’s very hard, because at the same time, we think that technology sometimes enables big incumbents to compete even even more erociously against a potential startup. So it’s hard to say what will happen, but there’s quite a lot of encouraging science. I would say.

Joyce Klein  33:32

That’s great. Thank you, Tim. And you talked a little bit about the role of technology in business formation. Anything you want to add about the role of tech or in small in running a small business, or the risks of it? Yeah.

Tim Ogden  33:43

So I’m not an economist. I only play one on live streams, but I do serve a lot as a sort of a translator. And one of the ways I think about this is the classic Ronald Coase idea, the theory of the firm. Why are businesses of a certain size? And it has to do with this, how much does it cost to transact, to coordinate effort, and the higher it costs coordinating effort, the more you can lower them by getting bigger. And so when we get these technologies, potentially, some of the things going on is it potentially is easier to coordinate smaller chunks. It’s also potentially harder to coordinate smaller chunks. But what I really I think about something, a conversation I had with one of the small businesses in our study last couple of weeks, who is a chocolate maker in Chicago. And like many small businesses, right, she is a chocolate maker because she likes making chocolate, not because she likes running an HR department. And her growth is in part, enabled by being able to watch a YouTube video that explains what the ROI of certain kinds of machines are that enable her to decide whether it’s right for her business or to have a platform like Gusto to do some of that, to give some of our workers early wage access through some other third party so that, you know this is a very cyclical business. You can imagine, when do you sell chocolates? You sell chocolates at Christmas and Valentine’s Day, and not a lot the rest of the year. And so she has a lot of employees that are have a lot of volatility. And so now she has access to things she might not have ever been able to that’s making the business more viable than it ever was. So there’s technology that’s enabling it, and there’s technology that’s enabling her to learn faster, to use some of those technology tools.

Joyce Klein  35:33

 Super interesting. So let’s get into some of the challenges. We talked a little bit about challenges and opportunities with technology, but let’s talk about challenges facing small firms. So Tim, I’m going to go back to you because you’ve been talking to a lot of small business owners. What are you hearing from them about the primary challenges that they face?

Tim Ogden  35:51

So again, we are at the midpoint of this study. Nobody hang your hat on any of the things I’m about to say, because we expect a lot of this data to change. But one of the questions we ask is, what are your primary challenges and what are you spending the most time on? And one of the things that that is interesting in the data that we’re seeing is businesses say their primary challenge is hiring and retaining workers. And then we ask them what they’re spending the most time on, and it is acquiring customers. It is retaining customers, not workers. It is trying to figure out how to improve their processes, given all of these other things that are changing. And so we do see this gap between they say, my biggest challenge is workers, but I don’t know what to do about it. And so I’m spending my time, the limited amount of time as a business owner, on places where I feel like I can make a difference in my business. And that’s the thing that I’m really interested in, is the that piece. The other thing that I think is really interesting, particularly in relation to this this panel is the businesses that we’re talking to, at least two years old, less at least one paid worker, less than 20 paid workers in low income census tracks, they almost all say they have access to credit. They almost all say they are making investments, but they’re not using credit very much for those investments. And we are hearing some of these stories of the I used to think that access to small business credit was hard. Now it’s not, but access to credit that I can afford, that I understand that is the right tool for what I’m trying to do is really hard to figure out and manage.

Joyce Klein  37:34

Interesting, really interesting. We’ll come back to more about financing in a bit. But Rebecca, I want you to talk a little bit about what the past year has been like for Princess Awesome and the primary challenges you’re facing.

Rebecca Melsky  37:48

Sure.  So one of them is acquiring new customers. Always, the tariffs have been a really big deal for us for the past year It’s been a challenge to figure out where to produce, not knowing how much our products were going to cost when they came to shore has been a big challenge. And then, I mean, very big challenge, and then another really big challenge that we faced, not in the immediate past year, but over the past few years, is so we’re an e-commerce store, but we we use a warehouse and fulfillment center to store our products and ship them to customers after they place orders. And we were with one fulfillment center for a long time, and they were wonderful, and they closed for reasons I can get into later, if anyone’s interested. And so we had to move. So we spent a long time trying to find a new fulfillment center. We found one in Austin, we moved, and they were way more expensive than what we had anticipated. I did a whole bunch of planning for it, and it was still more expensive. And then they totally imploded and fell apart and it was awful. And so we had to move again a year later, after having spent way more money than we had expected on fulfillment that year. And so that’s kind of a hole that we’re still a little bit climbing out of, even though we have moved to another place, and they’re wonderful and more affordable, and it’s great overall. But it was a huge it was, you know, we have small margins, and so when we take a big hit, it takes a while to get out of it.

Joyce Klein  39:13

Great. And can you talk a little bit more about the way you responded when the first when the tarriffs were first announced, and how that has shifted just what the what were the business decisions you had to make to address, to deal with that.

Rebecca Melsky  39:28

I mean, so we at the beginning of 2025, we moved all production from China up to try to come into the United States as quickly as we could, because we anticipated that tariffs on China would go up. So we, like, brought products in that we were expecting to have for the holidays in February, we got all of that in. We canceled all the rest of our production at the factory in China that we love and does amazing work, and they’re like the best. So that was a bummer. And then we paid an extra $32,000 in tariffs that we were, you know, were above and beyond the customs costs that we expect to pay, which for a very small business like us, was a lot of money. It came directly out of our paychecks. It came out of our production. We have a lot less inventory right now because we cut production back. So we’re actually at like, our lowest inventory levels in 10 years, because we didn’t make as much stuff at the end of last year. And then we spent a lot of time just thinking, like, where should we make this? Like, should we make it in this factory? Like, what are the tariffs on India going to be? What are the tariffs on Bangladesh going to be? We made samples in different factories just so that we would have backup plans. Two weeks ago, we were out in Las Vegas trying to find new factories to work with. It presented a ton of logistical challenges, so much uncertainty, and was extremely expensive. Yeah.

Joyce Klein  40:52

And I think one of the things that was really interesting to me when you were telling me about what this was like, was you started off manufacturing in the US, you moved overseas. And part of the issue is that the way the industry is organized overseas is very different than in the US. So it’s way more complicated, because everything’s way more decentralized.

Rebecca Melsky  41:10

So in the United States, when you’re producing, you every piece of the process you’re doing separately. So you’re buying fabric separately, printing it separately, having that shipped to the factory where they’re going to cut and sew it separately. When you want to make the design for the product, you’re doing that with a pattern maker who is separate from the person who’s going to be doing the grading, which is making all the different sizes. So those are all different components, where you’re sending things back and forth and coordinating, and it’s expensive, and most of that fabric that you’re buying from an American country company, they’re getting from overseas anyway, the labels are also coming from overseas, even if it’s an American company, so they’re still tear there’s still tariffs hitting all of that. And other countries who have far more sophisticated apparel manufacturing, all of that is in house. So in addition to far more diverse and interesting fabrics, costs that are lower, although honestly producing in small quantities at ethical factories, it’s not that much lower. It’s so much more efficient and easy to make new products, to make different kinds of products, and it just was not sustainable for us to keep making everything here.

Joyce Klein  42:19

Thank you for sharing that. Because, first of all, again, I just think it’s like AI. I think the impact of tariffs on if you were talking about small businesses, it’s been, it’s been a huge story for many small businesses. So I thought it was important to share that. And also, Ryan, I wanted you to talk a little bit, because you’ve done some research looking at whether tariffs would lead to higher rates of factory utilization and like, just how does Rebecca’s experience relate to what you saw?

Ryan Decker  42:42

Yeah, so I’ll emphasize, I don’t have a view on trade policy or any other policy. But I do have some a little bit of research with some colleagues, Faria Kamal and Robin Braun that I work with when we talk about tariffs, it’s often in the context of, are we going to re shore manufacturing? Are we going to bring capacity into the United States? And an important thing to understand about US manufacturing, we actually have measures of capacity utilization, how much of the existing factory capacity we’re using. And utilization in manufacturing has actually been low. In recent years, it’s been around 75%. In the 90s, it was above 80% and so you might expect that before we would see lots of new capacity, we would see higher utilization of the capacity that we have, we would run the factories hotter. And so we just went out to ask, are the industries within manufacturing that are gaining the most new protection from tariffs also raising their capacity utilization? Are they running their factories more or hotter because of the new protection? And the answer is no, not really. We don’t find much relationship between recent changes in industry level capacity utilization and new tariff protection during 2025 and so you might ask why that’s happening, and there could be a few reasons. One reason could be that a lot of the tariffs are on productive inputs. And so if you’re trying to raise your own utilization, you might also be paying higher costs for your inputs, especially if your inputs are from China, or if they’re metal or some of these other targeted areas. So that could be one reason. We find a little bit of evidence in the data. When we look across industries that some of these industries are complaining of labor shortages. We don’t see that for manufacturing as a whole, necessarily, depending on the measure. But within industries, we see a little bit of that in these same tariffed industries.

Ryan Decker  46:04

And then third, really resonating with what Rebecca said, there’s various survey evidence suggesting that the way businesses are responding to tariffs is not so much let’s figure out how to reshore domestically. It’s let’s figure out how to move our sources from China to somewhere else. And so there was a recent Institute for Supply Management survey from a few months ago that said about a third of firms, manufacturing firms, were saying, we’re looking at moving our supply chain, but not into the United States. There was a recent JPMorgan Chase Institute note on mid sized firms that kind of found something similar. It said that they were sort of just changing where they were getting stuff. And then the Federal Reserve has a small business credit survey that one kind of found none. One kind of found nothing. They were kind of doing nothing. They think they didn’t know what to do, because things are so much in flux. So it looks like people just aren’t there yet to actually make decisions, to actually re shore and add capacity, and then we don’t see that in the data yet.

Joyce Klein  46:5545:21

So I just thought that was so interesting, because both because of how much it echoed what Rebecca shared about what her decision making process was about. And then I also I’m glad you did a shout out to the GDP mortgages, because I know some of the authors are here in the room, so people want to learn more about that during our discussion session. You can, you can learn about it, because that was a very interesting paper as well. So, so thanks for doing that. I’m going to ask one more question, and then I’m going to open it up to the group. So if you have questions, Louis has mics, and we will bring them around, too if you want to, as we open up for some questions in a bit, but I wanted to talk a little bit about, you know, we often celebrate entrepreneurship as a path to prosperity, but as Tim said, you know, starting a business also has risk to it, So want to think about what are the financial implications for individuals, and also think about the role of small business in our economy more broadly, as we think about how we build a stronger economy. So Tim, what does the research actually say about whether, whether small business ownership builds wealth? And you know, for whom is it a path to prosperity, and for whom might it be a financial risk?

Tim Ogden  46:33

So to sort of, you know, I come from doing a lot of this work internationally, and the micro finance revolution internationally, and the idea that we’re going to lift large loss of people out of poverty by making these small loans, they’re going to build their businesses, and then the discovery that, wow, those businesses aren’t growing, and then coming back to United States and saying that, Oh, well, those kinds of businesses don’t grow in the United States either. Why did we think they were going to grow really well in other environments? And some of that all comes back to what businesses do people start? What businesses are they able to start people generally start businesses that they know something about. And in low income communities, what they often know about is low margin businesses, because those are the kinds of businesses that are in their communities. And we have to be realistic about the fact that a preschool shout out to Louis, I also worked as a preschool teacher. So somewhere there’s something causal in doing this that has to do with being a preschool teacher. Is that preschools are not high margin businesses. They are not going to generate generational wealth. I see this phrase in a lot of small business literature, and it really frustrates me is that generational wealth does not come from a low margin business. That doesn’t mean it’s bad, it’s not worthwhile. It’s not helpful to that household. We have to be realistic about what kind of business can you start in a low income community, and how profitable can that business be? And then, therefore, what impact does it have on the households?

Tim Ogden  49:35

One of the things that’s interesting in our data is we ask people about the trade off that they see between one our businesses, growth is a major goal. When you ask them to rank their goals, growth is at the top. Anybody want to guess what the bottom one is? Personal financial security, that is their lowest ranked goal, which I was stunned, right? Right? That was not at all, was I expecting people to answer. But it is not that they don’t want that, but they do perceive growth as a part of the pathway to that. I can’t achieve more personal financial stability unless my business grows and investing and putting my own resources into that growth. And so I think understanding that and being realistic about growth prospects and what the timeline is of that is really important in understanding this. The other thing that I think is really interesting in our data is that people say growth is very high, but turning over responsibility to someone else, hiring a full time manager is really low, and those are in conflict with each other, right? You can’t there’s a hard ceiling to how much you can grow if you’re not willing to turn over a responsibility like to a fulfillment center or have a business partner who you’re going to trust to do the other things. And so figuring out that piece of the equation too, is how do we get people into the kinds of businesses that can grow and generate margins? How do we help them take the steps that actually can generate growth that is capable of generating wealth, not just income?

Joyce Klein  51:1649:43

I also think that it does tell you that if you see a lot of businesses starting in Lower Margin sectors, that’s a place where the cost and the structure of the financing you get to make the business work becomes really, really important to the ability of that that business to thrive. So Rebecca, I wanted you to talk a little bit about how you think about the financial trade offs that are that involved in owning your business, you know? And what are the economic benefits to your family and what are the other benefits to your family?

Rebecca Melsky  50:18

Yeah, everything you just said really resonated with me. So when we ran our Kickstarter campaign, we were two years into the business, and I was teaching full time, and we had an angel investor kind of come out of nowhere. He saw an article, he was also went to Stanford, like my business partner, and he was like, one of you needs to work on this full time. How much money do you need to do that? And I was like, Well, my family needs my salary, even though I don’t make a lot of money, but we need that. And he was like, All right, like, I’ll give that to you. And my husband was like, Thank God you didn’t make that much money. Like, easy enough to Why didn’t you make that much money? Because Jewish Day School teachers don’t make a lot of money.

Tim Ogden  51:00

So there’s a school connection that the teacher connection, like,

Rebecca Melsky  51:06

So Princess Awesome has not created general generational wealth for my family, but it has been an income, you know, it’s been 12 years. So that has fluctuated with the, you know, peaks and valleys of the business, and also, you know, what our what our families needed, but it has, like I said, absolutely changed the kind of wealth of my family in terms of time and flexibility and things that are definitely worth something but aren’t, you know, aren’t going in a bank and getting racking up interest. So because I was not the primary breadwinner, and still am not. We’ve been able to make that assessment that like, okay, the the business is worthwhile, even if we’re not making a huge amount of money. And the same has been true for my business partner. If it were, if that were not the case, if my family were really reliant on a particular level of income from from the business, that would be much, much harder, and we would have had to take, take a different path. I will also say that we very intentionally at the beginning, we didn’t go out and try to get investment like we had this one angel investor who came out of nowhere. But we weren’t trying to raise a round. We weren’t trying to we were never going for kind of explosive growth. We just, we wanted a lifestyle business that would allow us to be with our families, do a thing that felt important and good, and, you know, grow it and learn and enjoy the business on our lives.

Joyce Klein  52:34

Yeah, and I do think that actually is a really important story, at least for certain certain business owners, and particularly maybe in certain income segments where a lot of the role of the business is to allow people to achieve balance in their lives and also to maximize the value of their labor and the return on their labor, not necessarily enabling them to build something. And maximizing the value of your labor is helps you to build wealth, even if you’re not building that wealth inside the business. So, Ryan, I’d like to come to you now and from like, that bigger macro economic perspective, or the bigger perspective, like, what do we know about the relationship between business formation and small businesses and broader economic growth and and when businesses fail, what are the economic consequences of that?

Ryan Decker  53:23

Yeah so it is the case as you often hear, new businesses account for a disproportionate share of overall job creation. You can measure lots of ways, but it’s a very, very robust result. It’s also true, sometimes feels like a paradox, that a lot of new businesses fail. It’s about 45% within five years will be gone in a typical cohort. So how do you know? How do we think about these jobs, are they all immediately destroyed? And the answer is no. So if we look at a typical cohort, they’ll make a persistent, long, lasting contribution to job creation on net. And the reason for that is that those businesses that survive tend to grow, some of them, a small subset of them, will grow an enormous amount and create lots of jobs and create lots of wealth and lots of innovation and things like that. So I think the overall story is positive for the economy. But of course, we shouldn’t discount the costs of failure. And so when a firm fails, of course, a founder loses their livelihood and their occupation, their workers lose their income. And we do observe that firm failures go up a lot during recessions. Losing your job in a recession is a very, very unlucky event that can set you back for many, many years, sometimes for an entire career. Firm founders can lose a large share of their net worth, and communities can change. And this is why there was a lot of concern like early in the pandemic, if you lose a lot of businesses from your community, your community looks very different. So you know, from a macro perspective, all of this churning, it’s very easy, as an economist, to say all this churning is really great. We’re getting a lot of jobs over time, but for individuals and for communities, there can be these big costs that we can keep in mind and we should be quantifying.

Joyce Klein  55:04

So we’d love to hear from folks in the audience. If you have a question, raise your hand. All right. Great. Francis, can you tell us your name and your organization before you answer, before you ask your question?

Jacob Harr  55:20

I’m hi everyone. Jacob Harr from Community Investment Management. Rebecca, thank you very much. I was wondering, how has financing been a driver or an impediment to the goals that you’ve been trying to achieve at Princess Awesome, and how has that changed over the last 13 years? I know Tim mentioned, access to finance has become more pervasive, but trying to understand how you’ve seen that and experienced that?

Rebecca Melsky  55:48

Yeah, I feel like, over our 13 years, we’ve, we’ve used, like, almost every type of financing there is. I mean, we started with a Kickstarter campaign, and then we had a an investor. We’ve done lines of credit through, not bank, institutions, the biggest change that we’ve experienced are these quick access loans that Shopify and PayPal offer that you know, if you log into my Shopify account, like right under how much money we’ve made today is how much money Shopify is willing to give me tomorrow and the way that these loans work. What do you call the splaining when you all know it already, but it’s not mansplaining like you all probably know this small lending splaining, right? Like they take 10% of our revenue for as long as it takes, and they give you, you know, various terms. And whatever the terms are, however much money they’re giving you, they get it back in nine months. Like I’ve done all the calculations, they give you a large amount, a small amount, they get it back in nine months. So that ends up being really high APRs. I don’t know if it’s all the way to 394 or whatever you said before, but it’s, they’re very high. And those have been really helpful when we’ve, you know, when our tariff bill is really high, or, you know, we’re we’re a product based business, so we’re buying our inventory well before we’re selling it. Sometimes we need that money right now, and we can literally get it tomorrow in the bank account, but then we’re paying back $6000 or $7,000 on a $50,000 loan, loan. So it’s been helpful. But also, you get stuck in a cycle where, you know, and I do lots of planning, but there’s only so much planning you can do for what your sales are going to be, what your revenue is going to be, and you, you know, you come out the other end and you’re $7,000 poorer than you were at the beginning because you didn’t, you know, you paid for that money right away. So I’m not sure if that entirely answers your question, but it’s we have relied on all of them, and it has been very helpful, but also, sort of like Facebook, also, it’s a blessing and a curse.

Tim Ogden  58:00

Joyce, I would just this is also something we see, both particularly internationally, but also domestically, is that the financing challenge is more about liquidity than it is about funding assets, when so much of the community development capital is about funding assets, and so people turn to these more expensive things, because that’s where the liquidity lending is, and I think that’s just a huge opportunity for. Innovation for us to figure out. And I, you know, I talked to some of the lenders line liquidity lending is really, really hard to do and stay alive, but there is tremendous opportunity this gap in innovation and delivering liquidity to small businesses, not at 300% that I think really, really matters to small business.

Richard Trent  58:47

So I got the mic, but I’ll give it to you next. I’m Richard Trent, the Executive

Joyce Klein 58:54

Oh, sorry, you are identifying yourself. Thank you.

Richard Trent  58:57

I’m Richard Trent, the Executive Director of Main Street Alliance we are a network of 30000 small business owners that fight for the policies that we feel make our local economy stronger, usually care policies, because we feel like care ballooning care costs are a big drag on Main Street dynamism. I’m very interested in this conversation around low margin businesses, because there’s, like, there’s, there’s low margin businesses that are, that are structurally low margin orders, what I think you were talking about. But then there’s also low margin businesses that have low margins because Amazon is squeezing them or their supplier concentration that’s driving up prices for them, ballooning health care costs, and so sometimes it feels like Main Street doesn’t have a lending problem. They have a margin problem. And that capital access, the problem with capital, it’s downstream of larger market concentration issues. But I feel like I rarely hear sometimes in conversations like this, criticisms of market concentrated market power actually being a driver for the lower margin businesses that actually can’t, that aren’t it doesn’t make sense to lend to right? So I don’t know how you think about sort of market concentration as it plays into the lending landscape.

Joyce Klein  1:00

Anybody want to take that? Tim?

Tim Ogden  1:001:19

I’m looking at Ryan first before I sort of leap, leap into the gap.

Ryan Decker  1:001:23

Well, unfortunately, I don’t have anything helpful. I’ve looked into this a little and teasing out the causality between in the data. Just you know, in the data, teasing out causality between market concentration and entry has proven very, very difficult. I’ve tried myself, and I have not found any great conclusions on on how to generate insights about this, but I bet Tim has got some

Tim Ogden  1:002:45

No, not any great insights, lots of questions, because it is, there’s a plausible story about market concentration raising costs, but many small businesses are not very efficient, and their costs are actually higher, and that one of the reasons we get bigger businesses is that they are more efficient, and they bring down prices. And to Ryan’s point, it really is difficult to because sometimes you see market concentration actually lowering prices, and sometimes it’s creating market power that’s raising prices. And trying to figure out where that’s happening in which ways, and ultimately, what we also care about is, what does that mean for the prices paid by the consumers in the low income community? Is it cheaper if there’s Amazon undercutting the local business to the buyer of that thing, or is it ultimately really bad for that community, because Amazon has undercut that business, and it’s not always easy to tell the difference between those things. And I think we have to keep our eyes open and not close our eyes to the possibility that both things can be happening. And we have to be really careful in defining the problem and how we measure the problem, to make sure that we’re innovating in ways that are actually going to help the problem, not just calcify it in a certain variety of that problem.

Joyce Klein  1:023:02

Okay, I saw another hand. Eric?

Eric Weaver  1:023:05

Hi. Eric Weaver, I’m Senior Advisor with City First Enterprises and Founder of now ACCION Opportunity Fund. I was curious. Rebecca, it sounds like Shopify does not give you an estimated APR when they offer you this financing, do they or

Rebecca Melsky  1:023:23

They don’t give you an APR because they don’t call it. They don’t do that. They tell you how much money you’re going to have to pay back, and they tell you how long you’re going to pay it back and what percentage of your revenue they’re going to take. And PayPal does the same thing, right?

Eric Weaver  1:024:42

Well, would it be helpful to you if they did?

Rebecca Melsky  1:024:45

Tell me the APR?

Eric Weaver  1:024

 Yeah. It sounds like you’re able to calculate, but a lot of small business owners would struggle with that..

Rebecca Melsky  1:024:54

Yes, I mean, it was helpful. So my husband and my business partner husband are also in the they’re either economists or they play one on TV, and it was helpful for me to have it explained to me, because I was like, well, if I’m paying back $5,000 on a $50,000 loan, isn’t that just 10% what’s the difference? I know. I know. I know. And so to have it for them to like, well, but it’s the time and how much money would you get? But like that, that did shift it for me. And I think of myself as a pretty smart person. So I could imagine there’s other business owners also who have same, like, well, it’s just a 10% you know, a 10% interest fee or whatever. So yes, I think it would be helpful, but I don’t think it wouldn’t necessarily change the underlying well, but I need that money right now, and there’s nowhere else to get it. And otherwise I don’t, I can’t pay my who, you know, fill in the blank.

Tim Ogden  1:03:47

And absolutely, that’s the thing we hear from the businesses a lot, is it’s not the price, it’s the time that matters. And ultimately, over the over time it does, the price does matter a lot, but the decision making it you could give them a lot more information, and the only information they’re paying attention to is 24 hours, versus three weeks with uncertain outcomes. Effectively, the price is infinite for the latter and lower for the former.

Randy Zeller  1:04:18

Yes, yeah. Hi. Randy Zeller, I’m for this purpose, Vice Chair of the Board of CAMEO Network, which is the association of California micro lenders. I’m really struck Tim by what you said about affordable capital, and then Rebecca, what you said about using the Shopify loan versus your line of credit. And one of the things I have really wondered about and asked a lot of questions about, but haven’t gotten a great answer is, why CDFIs, which are more accessible to the smaller business owners when banks won’t be don’t offer lines of credit. And I know all the standard answers, but my question to you, to the panel, would be, do you see that as a possible innovation slash solution that would help? And if so, what do you see it taking to get there?

Tim Ogden  1:05:12

This is a question for Joyce, isn’t it?

Joyce Klein  1:05:15

I’m the moderator.

Tim Ogden  1:05:20

Its a complicated question. I think it requires a lot of innovation to figure this out. One is lines of credit liquidity lending has to be fast. CDFIs are heavily incented to keep prices low or keep their not prices their costs low first of all.  Being fast and keeping your own costs low are incompatible goals. Second, it is CDFI. You know, line of credit lending is more expensive and it is riskier. It means you’re going to have to charge higher interest rates. Lots of CDFIs are uncomfortable charging kind of interest rates to make that a viable business. And you know, that is also sort of a policy question of, can we find a way of offering interest rates that are higher that recognize the cost and the risk without it being perceived as predatory, because it’s 22 or 29 or 39% for that kind of lending that we are structurally set up to say that’s bad. If you’re doing that, you can’t call yourself a CDFI. You must be a predator, and that’s incompatible with actually being able to do it.

Joyce Klein 1:06:37

Hi, I’m two more questions. Yeah, go ahead.

1:06:40

Sure. All right, thanks. Hi. My name is Dave. I’m with prosperity. Now, although I’m asking this with my I’m also a former regulator, so that’s part of my interest in this. But I’m, I am have the I’m struck by the analogous nature of this discussion to what happens in payday lending and conventional small dollar lending in the consumer markets. And you know, recently, I was reading an article that even merchant cash advance providers are having difficulty securing revenue back through bankruptcy. for example, at the end of the business life cycle. I’m curious if folks are seeing, either in the data or on the ground, just from entrepreneurship groups that people are participating in, that this sort of high interest predatory capital is creating a problem, either for folks you see out there or or if we’re seeing that either at the community or market level yet, because that’s what I would expect to see over time.

Joyce Klein 1:07:34

This, if people want to dive into this question, that’s great. I may ask you to hold it because it may be actually a better question for some of the folks on, on on later panels. I don’t know. Does anybody here have feel like this is a question that makes sense to them? I think it’s a great I think it’s a great question. Think it’s a great question. It just may be we need, we need to have it in a different place.

Tim Ogden  1:07:51

The one thing I would add that isn’t directly answer to that is that the line between personal finance and business finance is much thinner, even when you’re Incorporated, even when you have so many different like, there’s a business account, and it’s tied to my ein versus my these businesses are essentially almost always 100% owned by one or two people, and every residual of the business is the personal finance of the owners. And so then when you get into the personal guarantee and what the business means and all that sort of stuff, it’s helpful. Think about, well, there’s business finance or the personal finance, but it’s also really helpful thing, that line is really, really thin, and therefore the knock on effects across these things of merchant cash advance leads to a payday loan from the person that I trust in the business, because we’re still we need to make that payment or other bad things happen. And you get in these cycles, and all of these things play together and and keeping in mind that they are, this is a system is really useful.

Joyce Klein  1:08:55

Rebecca, I saw you nodding. Do you want to add anything to that? 

Rebecca Melsky  1:08:58

Just that, yes. I mean, there, is there a line? I don’t know. I mean, it’s all it’s all right for

Joyce Klein  1:09:04

For you when, when you’re when your profits go down, your sales go down, your profits, good, your costs go up. Yeah, just shows up as I have less money that I take out of the business. That’s the great Do we have one more question? All right, perfect.

1:09:17

Yeah, hello. Is this? My name is [Ole Ayasnap]. I’m at the JP Morgan JP Morgan Chase Institute. I’m one of the authors of the report that you mentioned Ryan on international payments by middle market businesses. But my question is for Rebecca, I found your details on how you’ve been navigating tariffs really interesting, and I was wondering, is this something you’ve been doing alone, navigating the uncertainty? Have you had any outside help trying to figure out what’s going on? Because it’s complicated for me, and I spend a lot of my time studying this. So I can imagine it must be hard when you’re also running a business. And then the second part is, how has this increase in cost impacted your margins? Have you raised prices in in tandem? Or are you considering raising prices in the future?

Rebecca Melsky  1:10:15

So to your first question, my business partner’s husband is, like, one of the world experts on tariffs, so we would often just ask him, like Ernie, what’s happening now? We also we’re part of a lawsuit, and so we had lawyers advising us who are now helping us to hopefully get refunds, and doing a lot of research. And also, there have just been questions that no one knows. I mean, there were points where I’d be like, what’s the tariff rate on Bangladesh going to be six months from now? Literally, there’s not a person in the world who could tell you the answer? So, doing our best. And then, so we raised some prices on products that we brought in that had a tariff on them a little bit, you know, by $2 or $3 we didn’t just sort of site wide add money to, you know, raise all the prices. We also added a tip jar at checkout and said, you want to kick in a few dollars and help us cover the cost of tariffs. And people actually did, which was really nice. So we’re trying to figure out, you know, if we if/when we get a refund, what? How do we handle that? Because we don’t want to steal everybody’s money. But also, you know, if we raise the price from 59 to 62 and then somebody bought it with a 25% of 25% off discount, like, I don’t really know how much money they would get back, because they might not have bought it at all if they hadn’t had the discount. So, you know, we’ll figure that out later, but that’s, that’s how we’ve handled it

Joyce Klein  1:11:38

Great. So thank you. I think we’re just at time. So, so I would love to thank my panelists. I thought this was a great conversation to sort of get us started and really grounded.