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.

Peter Renton 00:05

Hi everybody. My name is Peter Renton. I am the founder of Renton and Co., where I’m a consulting firm focused on FinTech and events. I’ve been doing FinTech events for 13 plus almost 14 years now, and I have been an enthusiast of FinTech for the last couple of decades. And I’m also a lifelong small business owner. I’ve only ever worked in a small business. My father was a small business owner before me, and he, he gave me the bug. And I don’t know what it’s like to have a real job. I’ve never had one, but I do love the you know what, what they were talking about, the freedom that it gives the ability to have much, much more control of your of your time and and often finances. But I’m saying that I’m also I’m a FinTech enthusiast who’s a small business owner, so small business lending is like this great blend of all of my interests, and it’s always been something that I’ve been personally very fascinated about and innovation in small business lending, which is what this this panel is about innovations driving small business lending forward. It’s that that is something that is very near and dear to my heart. So with that, I would like to hand it over to the panel to do quick introductions.

Malika Anand  01:39

Malika, sure. Hi. I’m Malika. I serve as Director of Impact at Community Investment Management. You met Jacob earlier, but we are an Impact Manager backing responsible lenders, most of them tech enabled fintechs here in North America and as well as a handful of emerging markets. So like Tim, I have the pleasure of getting to see innovations around the world, and my job on the investment team is to help us understand which models are responsible and are going to have long term benefits for their users, and which models we should be being more careful of and trying to keep up with the evolving landscape of predatory and responsible lending.

Jay Long  02:21

Good afternoon, everyone. Jay Long Co-founder and Chief Operating Officer of Parlay. Parlay is a loan intelligence system, and our mission is to help lenders get more small business done, loans done cheaper and faster. Within the context of this conversation, we feel pretty lucky to be both small businesses ourselves. We’re a startup and also supporting small businesses in their journey to access capital, which gives us a really interesting take on both the borrower side and the lender side of the equation and the way technology is shaping the broader ecosystem.

Elizabeth Ross-Ronchi  02:50

Hi everybody. Elizabeth Ross-Ronchi, and I am the Chief Marketing Communications and Product Strategy Officer at ACCION Opportunity Fund, and I have to, of course, recognize some of my wonderful colleagues in the room, Whitney, Eric and many other fans along the way. We are a leading CDFI lender that’s focused on not just capital but also education and technical assistance, and we really believe that those two things have to move together to do responsible lending in this country, and so our vision is to become the first mission driven, scalable, financially sustainable lender that’s doing both education and capital at the same time together.

Samir Shergill  03:40

Hey, everyone. Samir Shergill, I’m the Co-founder and CEO of High Beam. We’re a banking and AI cash management platform. That’s a lot of FinTech buzz words in one sense. So I’ll break that out a bit. So our customers are small business owners, actually, like Rebecca, who I will try to pitch shortly, but people who’ve started consumer brands who are trying to grow their businesses. And it turns out, for those businesses, cash management is mission critical, but really hard, and so a lot of times, don’t even understand how much cash they’re making. I say cash very precisely, not profit. They really understand their sales, usually pretty well. They may understand the profit margins, but not the cash, but that’s kind of the most important part of it. So what our platform does is, in one platform, you have banking, lending and cash management and planning for these businesses to kind of maximize the amount of cash that they get to maintain and retain.

Peter Renton  04:29

Okay, so I want to this is, this is about innovation. This, this, this session. And I used to run a conference called Lend It, which was all about lending innovation. And I’m thinking back to when it was about a decade ago, where we had so much enthusiasm, there was lots of money coming into the space, and we all thought that we were going to solve small business lending so that every single small business would have access to capital within a decade. That was a decade ago. It hasn’t happened. I think we’ve made strides. But that’s what I want to start off with. I’d like to get perspective from from each of you as you start off with, let’s going back over the last decade where, where have we made progress, and where do we still have a lot of room to improve? And Samir, let’s start with you.

Samir Shergill  05:24

Yeah, if I could just tie it back to the last panel, I find it really interesting that Rebecca’s point of view, like the access to capital has seemed to improve. And we see that a lot as well, where FinTech has seemingly provided a lot of access to capital for people when they need it. I think what’s happened, though, is in some ways, it’s very extractive as well. And so while people have now access to capital, they don’t necessarily have the tools to decide, is this the right product for me? What’s the impact on my business? Should I take this money or not? And these are tough questions to answer, but I think there’s increasingly this idea that because of the availability and the Internet and ubiquity of like access to these businesses, there will be people willing to provide them capital at some rate, but they typically will find ways to hide that rate or find ways to have the expertise on their side of the fence. And so I think there’s been this imbalance now where, for the first time, a lot of small businesses, the ones that we see have access to capital, but there’s a still large expertise gap on what is the rate here? Is this a good product for you? Should you take this money? What alternative do you have? And so I think that’s where, kind of we see the pros of access, but the cons of not being able to actually compare options.

Peter Renton  06:39

Anyone also want to jump in on the last decade?

Elizabeth Ross-Ronchi  06:42

Yeah, I’d be happy to. So I love that Samir. And what I would add is the digital platforms and fintech platforms have been tremendous in giving us confidence that we can solve this three legged stool that I talked about in terms of financial trilemma at the same time, though, for the vulnerable small business, more vulnerable small businesses and communities that we’re looking to serve, having that human interaction, to understand edge cases and to understand their context is incredibly important, and so I think that’s really important, and we’re still trying to figure that out as of course, unit economics are important, but also that human interaction is incredibly important to maintain.

Jay Long  07:29

If I could just add to I think, from the FinTech perspective, it’s been inspiring to watch the shifting perception from lenders and banks, where, I think maybe 10 years ago, fintechs were seen as an extraneous third party group, and now they’re seen as core enablers of operations and strategic partners, and we’re seeing emerging roles at banks, like Chief FinTech Officer or something along those lines. And so the interoperability between the two systems has been really helpful.

Malika Anand  07:52

Yeah, I mean, I think we thought that in solving the financial access problem, that we would see this unlock of small business some small business some small business longevity, small business resilience. And in fact, those numbers haven’t changed, right? You know, the panel before us mentioned that most businesses don’t make it to five years, and maybe only 25% make it to 10 years. And those numbers have stayed more or less stable, even as the FinTech revolution has unlocked all kinds of access. So I think the question becomes, what’s what’s going wrong in some ways and what’s going right in other ways, right the access, the ease, the fact that the button is right there for Rebecca, that she gets the money tomorrow. All of those are massive improvements, I think most small business owners would claim. But yet, we’re not seeing the commensurate sort of improvement in outcomes that we would hope to see, which is that people feel more capable in their businesses, that they’re able to operate them for longer, that they are not digging themselves out of holes months and months later. So that’s where I would, I would focus?

Peter Renton  08:53

And as Rebecca said in that last in the last panel there that she was, I think she she talked about Shopify, advance, paying back 10% every day. That was a little shocking to me, that but the problem that I see, and what I want to maybe Samir, I’ll go to you first, is this, the transparency and the information asymmetry that you know, she didn’t know what the APR was. Maybe Shopify provides it. Maybe it doesn’t. It would only be an estimate anyway, because it’s a it is just this advance that cuts coming out of you don’t know how long it’s going to take to pay off the loan. So What? What? What innovations are actually moving the needle when it comes to transparency today?

Samir Shergill  09:42

Yeah, and if I could just build on what Malika said there, what’s interesting to me is, like FinTech has not fundamentally transformed how small businesses make financial decisions right, like they might be writing access and the FinTech might say, Well, I’m done a lot of work to make sure if I get paid back or not. And I’ve done a lot of work to make sure if I get my money back, but there’s not yet been a transformation in helping the small business make better financial decisions, right? And this goes back to this information asymmetry problem where, you know, take the Shopify example, and Shopify is not the worst offender here. In some ways, if you’re you know the cost of capital is what what it is to some of these businesses. But let’s just take cash advances, and they’re preying, in some ways, on people’s intuition. So give you an example. Someone might say, this is a 10% fixed fee loan over the course of six months, right? And maybe you say, like, Okay, I’m pretty smart. I have the intuition that I’ll double that. And it’s a 20% loan because it’s 10% six months, 20% 12 months, expensive, but still fine. Well, actually it’s a 40% loan, because what they do is they start taking money every day, so your average balance is about half of what you would think it would be. So these are things that they’ve obviously thought about, but the small business owner is not going to think about, right? So there is information asymmetry about it’s kind of like the same thing with you’ve seen lots of other different spaces and gambling other places, right? Where you need to have fairness on both sides, or expertise on both sides. And so I think that a lot of the innovation that I’m excited about and what we hope to bring is, how do you bring the expertise to level the playing field for small business owner, and how do you in a way where they can make informed decisions on Yes, this is good for me, or this might be expensive, but still my best option. Or a lot of times, like, don’t look for a financing solution for an operating problem. Like, make the hard decision. Like, sometimes you have to make the hard decision to lay someone off or do something different. But sometimes that short fix looks like the right answer. It might not always be. So I think that’s kind of part of the problem here.

Peter Renton  11:38

Right? Do you want to join us?

Jay Long  11:41

Yeah, if I could just build off your point. I think when you think about transparency and data, and you think about like the data science pyramid, descriptive data is important. It tells you what the real cost alone is. I think where it gets increasingly fascinating as you look at the role of emerging technologies like AI is when you go into diagnostic and prescriptive and even proactive data. And I think within the context of merchant cash advance or other tools, a question might be, how do we get left of the dilemma where I need to get cash tomorrow or not, and what can AI or other tools do to allow me to understand the tapestry and terrain of my business so that I can be working in advance? And I think the education layers are much deeper than just this individual product, and it’s more, how does FinTech enable the strategy itself?

Peter Renton  12:22

Well, we are going to dive into AI in the second half of our discussion, because this, the sub topic for this is, it’s not all about AI. And so we want to talk about the innovations that are happening. I mean, obviously AI infuses absolutely everything today, but the core innovations that are happening that are not really as a result of what AI is doing. And one of the things I want to talk about is the education piece. And Elizabeth, I know at ACCION Opportunity Fund, that’s a really big part of what you do, helping helping small business owners understand finance better, because not you know, as you say, most small business owners don’t, they don’t get into small business because they want to become expert at managing finances. So maybe you could talk about how you do that and how it changes outcomes.

Elizabeth Ross-Ronchi  13:16

Yeah. Thank you, Peter. So you know access without understanding is an opportunity, and we’re really focused on this integration, integration of lending and learning, and it’s based on an insight. So we have several small businesses who have said, Don’t give me capital without giving me the know how, and for the populations that we serve, there’s oftentimes not as much inherited knowledge or financial acumen, and some of the traditional financial education can seem inaccessible and not grounded in the practicalities of what they’re experiencing on the ground. So today, when we have someone who goes through our pre-qual check, for example, or gets declined, we don’t view that as the end of a relationship, but still the beginning of a relationship. So for example, if somebody doesn’t make it through a pre-qual check or they get a decline, reason, we actually say it in plain English, and so that gives them agency to be able to take accountability and to focus on getting ready and what readiness means for them. And the way that we further help them do that is actually through the help of several whether it’s JP Morgan, Chase, MasterCard and others who have helped us really develop the ability to personalize learning. So right in that experience, let’s say you weren’t ready because of cash flow, then we’ll serve up a cash flow learning module right in that environment. Over fiscal year 25 we had about 900 small businesses take advantage of this and share that they felt like they mastered that experience. So you might say, okay, so fine. Why? Why are not, you know, more organizations doing this well for CDFIs, this is resource intensive. It takes investment, right? And so that’s a challenge, much less to do it through a digital environment. And for digital providers are really focused on unit economics, of course, and so it takes a belief that this is important, and then focus and then sustained accountability. So that’s the journey that we’re on, Peter

Peter Renton  15:40

Interesting, so Malika, I want to turn to you and something that you talked about in on our prep call a couple of weeks ago. You were talking about resilience solutions and how the industry is shifting from this growth, growth financing mindset to what to a more resilient financing mindset. Explain what you what you mean there.

Malika Anand  16:02

Sure. I think when we, when I first came to the microfinance industry, 20 years ago, we talked a lot about startup capital, right, or growth capital for small businesses. And what we’ve seen is that people start businesses right? We heard that just earlier this morning, people have they’re able to find the resources to start businesses, but those businesses don’t survive, right? So only 25% make it to 10 years. And when you ask them, What happened, it’s not that they didn’t have a great product, it’s not that they didn’t have customers, it’s not that they didn’t have suppliers. 82% of business owner of closures in America happened because of cash flow management problems, which to say, sort of like Rebecca was talking about, there was an expense, there. They need to stock inventory, and they’re not going to get paid for a 60 day cycle, a 90 day cycle. Meanwhile, you have bills to pay, employees to keep on payroll, have to keep the lights on, and that mismatch between your income streams and your expense streams just create these gaps, gaps in liquidity, as Tim mentioned, and it’s almost a perfect problem for FinTech, right? Because what it means is that there’s these kind of you can see in cash flow where the money’s going, who’s getting paid at what time, in a pretty predictable way, and you can see what money is coming in from from customers as they swipe cards or they purchase on on Amazon or Marketplace or whatever it is. And these are oftentimes short duration gaps, which is also eminently financeable. But many of our financial service providers are not set off to meet that kind of financing need. But what we’re seeing more and more in our portfolio, and what we’re really excited to see in the innovation piece of this panel is the sort of variety of cash flow management solutions that are coming up. We’re very proud to have High Beam in our portfolio. And Samir will talk more about how their match solving this problem for small business owners.  But we have companies that are solving this based on invoices, companies that are solving this based on trade agreements, companies that are solving this based on revenue that based on so there’s a whole, there’s a whole, I think, industry and community forming around understanding the cash flow and cyclicality of small businesses, and they’re there in crafting these very tailored, very particular solutions. And much like we heard, they’re able to create experiences that feel easy and seamless. 10% feels like a lot, but it also means that a little bit is going every day. You don’t have to remember to pay it. It’s not happening on the 15th, which might be a Sunday. In some ways, it’s if you don’t want to focus on HR and you don’t want to focus on bill payment. These can be very natural, agreeable kinds of arrangements for your small business. But as Samir was mentioning, it can be very difficult to understand how much they cost, what the obligation for your business might be over time, how it might square with your long term profitability. And so this line between what responsible resilience solutions look like and what predatory solutions look like becomes increasingly difficult to to distinguish.

Peter Renton  19:20

Right. And let’s, so let’s, let’s dive into that. And I, I want to turn to you, Jay, because one of the things that that you’ve really focused on is this cash flow data that’s available through open banking. I mean, that’s an innovation that is, has been groundbreaking, I think, for for the growth of FinTech, and it allows for, you know, cash flow analysis at scale, which was simply wouldn’t be possible without it. So maybe you can talk about how, like, how you’re how you’re using it, how you’re making this available for lenders, and what, and how it’s improving the not just the. The borrower experience, but the lender outcomes.

Jay Long  20:02

Absolutely.  A theme that we’re hearing a lot today, I think, is that cash flow injection is not a way to mitigate against operational challenges. And so what we end up seeing, and it’s brought up, cash flow management is important, and operator expertise varies a bit wildly. Where we found a lot of success is Parlay in partnering with MasterCard is that providing lenders with the ability to have on demand access to cash flow data allows them to see a lot of variances in the way that a business is managing cash. So they can be much more than just a lender where you’re negotiating on rates, but they can be a capital stack advisor. So we found for some of our CDFI lenders is they’re able to turn on the open banking data, API call per inquiry at the point of need, and so as they’re doing the initial assessments, they’re able to understand cyclically and at scale, how are these small businesses leveraging cash? There’s a few things. One we’re finding it helps them better understand and surface if MCAS or other injections have been used, and it’s less of a gotcha game with the small business and more an opportunity to educate them and become a partner. And so we’re seeing there’s a lot of really tailored education instruction. A theme that’s come up consistently this morning is the importance of being a really good technical assistance provider, so our partner is able to use that data and look at a small business with a lot of focus on the unique components of its growth, and have really tailored conversations about not just this individual inquiry but the overall tapestry of products that could support them. So we find that’s a really powerful tool. Open banking doesn’t just empower the lender, but also empowers the borrower by giving them more insights. And we’ve seen a lot of really cool opportunities to use the data in the application process to increase awareness for both. So we’re able to generate dashboards back to the applicant, for example, so they know where they are, which can be really helpful for small business owners.

Peter Renton  21:49

Okay, so then Elizabeth, I want to turn to you, because one thing that I wasn’t aware of until we had our call recently was the research you’ve done with Ripple, which I thought was super interesting. And so tell us about that research and the digital tools that are available for these for underserved small businesses that that haven’t been available before.

Elizabeth Ross-Ronchi  22:15

Yeah, absolutely. And of course, we’ve not released this research yet, but I will share some early headlines, and you can look forward to seeing the report soon. So we conducted a national survey of about 600 small businesses, the majority of which are underserved small businesses. And interesting. You know, you might think that underserved small businesses are more tech followers as opposed to leaders. But what we found is, of course, it makes sense for operating leverage, they’re actually more urgency, right? Like tech, technology is urgent, and so interestingly that digital tools and technology was actually statistically significant, found more important among underserved small businesses than all small businesses. No surprise that financial tools, payment tools, were the top category of importance. But what was super interesting, as we’re talking about AI, is that AI was by far more important for underserved small businesses than all small businesses at this time. And I think again, that really speaks to some of the pressures even that Rebecca talked about in terms of whether it’s operating leverage, and we even experience as a as a small business ourselves and how we’re using AI to give us operating leverage. So I you know some of the interesting findings, though, what are the barriers, right? What are the opportunities for us to think about as we’re designing products and solutions. First cost, right? So any new technology needs to be accessible, and then the second is intimidation, right? Intimidation in trying to figure out how to implement some of these new tools and technology. So anything that we create thinking about how it’s accessible in terms of affordability for different segments of customers. And then second, how you can make it really intuitive and make sure that you’re being customer first in your design. So those are the some of the things that we’re thinking about. And again, we haven’t published this research yet, but those are some of the early things coming out of it.

Peter Renton  24:43

Okay, so I want to, I want to switch gears to another innovation I think that’s been groundbreaking for a lot of small businesses, particularly when it comes to capital access, and that is the embedded lending piece from you’ve got in the vertical SaaS space. Pretty much every industry now has a vertical SaaS player or multiple vertical SaaS players, and what what that has meant is that they understand their niche better than any generalist bank could ever understand it, and so they’re able to analyze the numbers in ways that have better predictive power, and so they’re able to lend in a lot more aggressive ways. And what I think this has done has been it’s moved a lot of the financing outside of the banking system. I mean, often banks are at the end of it, but you know, you’ve got companies like CIM providing financing for for a lot of these things. So I want to open this up to anybody. I mean, what tell us about what you think of this sort of, this trend towards embedded lending and this expertise inside the vertical that these software companies have, and is this a threat to banks and CDFIs, or is it an opportunity. Anyone?

Samir Shergill  26:04

I’m happy to go first, I think it’s probably both. But I do think that it’s really interesting that, if you think about it, that most financial products are horizontal and that they’re consumed by all businesses. Everyone has the same credit card, everyone’s the same bank, everyone has the same access to the financial products. It’s not specialized by business, right? Whereas that changed completely for software. So what happened in software was to help you run your business, you have to understand what the business is doing. So Shopify helps consumer brands, right? Because understands that its business is selling consumer goods. Toast helps restaurants. It understands that my business is, you know, a restaurant. But if you’re a lender to the business and you don’t fundamentally understand what the drivers of that business are, how are you making underwriting and servicing decisions to the best of your capability? You’re not. And so if you think there’s a one size fits all. I’ll just look at the accounting data and do the same asset based underwriting, or whatever underwriting I’m doing across every single business type. That doesn’t work. It doesn’t scale. So to me, it’s more if you know, lot of times technology or FinTech or startups will race to where the opportunity is, it doesn’t mean that doesn’t exist for, you know, banks or other players. It’s just a matter of, are they willing to augment their underwriting with an understanding of maybe we should consider these augmented data sources. Maybe we should change how we think about things. And you know that pressure of will we want to do that? We’ll see. But I do think that what’s happening now is there’s an increasing understanding that the underlying business data to order, to process that and understand the health of the business or the quality of risk, you have to understand what the business does, and you have to understand how that data relies on that for just to give a quick example, in our segment, if you’re selling consumer goods and we’re lending to these businesses, if your first order profitable, or if your return rate is super high, that’s a bad sign, right? So I know that if you’re selling a product, but your return rate is spiking, that’s a really bad sign, and I’m going to stop lending, or, you know, pull back. Now, if you’re a bank and you don’t know this, well, obviously you should, but you know that data is available. So I think that it’s a matter of, will the industry evolve such that you’re not just using accounting data signals, and you’re using these signals that now are available by business type.

Malika Anand  28:24

Yeah, I don’t know if I agree that that banks have been so agnostic about sector or type. I mean, I think we’ve, we’ve had a long history in financial services, both in the US and outside of the US, of quite specialized lenders, whether that’s ag or project finance or infrastructure. I don’t I do think that that whether it’s formalized in the language that we use now, in terms of vertical or horizontal, there might be a debate there, but the notion that you must understand the fundamentals and the mechanics of a business to be able to lend to it well, I think has always been true in the financial services sector.  The fact that we now have a range of what we used to call alternative data, and now might call open finance. Means that there’s making be maybe much more specific about especially maybe in the small business sector, but the notion that business fundamentals matter in underwriting, I think, is well established.

Jay Long  29:22

I think my only contribution would be Mike. I would imagine there’s few cases where having more options is generally bad. There’s times when speed matters, in which case that can be an incredible resource. If you know that you’ve got a big company investment coming up, then some of the balance sheet strength of a traditional lender and the rates that they can offer accordingly might be advantageous. So my my current hypothesis, the way we think about this in Parlay is by creating more access to opportunity and more access to financial resources that can be bespoke to your need, you’re going to have, hopefully, a broader ecosystem of businesses that can become future partners for financial institutions across their journey. So I think it’s net additive. But we’re definitely in a storming phase as a collective.

Peter Renton  30:02

Yeah, that’s fair. Okay, let’s talk about AI, and we have to. Yes. So there’s, there’s obviously a lot of hype out there. There’s also, there’s also a lot of incredible use cases that are, that are happening. Maybe, let’s start with how you are deploying AI today, beyond just doing coding, which I think has become a pretty well established use case. Now, if you are not coding with AI, you are way behind all your competitors. So let’s talk about what, what? What are the use cases, and what are the concrete differences making? I want to hear from everybody. Samir, I’ll start down with you.

Samir Shergill  30:49

Sure, I’ll put in two buckets. There’s, how are we using AI internally, and how are we using AI in our customer facing offerings? And both have evolved quite a bit internally. I think it’s a lot of it is, can we more efficiently clean and categorize this kind of unstructured data the small business generates in order to have a standardized data set to do underwriting, to provide business logic, to do other things with it? And that, I think, is actually a game changer here, which is the way small businesses run their finances a lot of times. It’s kind of crazy to me is that there’s all this innovation around it. You talk about Shopify or Toast or these other platforms, but how they run their finances is still very much month end accounting. I get a random P&L balance sheet. I’m supposed to make sense of that most people actually just look at their bank balance and guess that’s usually how most small businesses run their business day to day, or they build some Excel model on the fly. So what we’re really focused on is, can we take the data from the small business and kind of short circuit that accounting loop by extracting the data and then in our customer facing offerings, putting that data in a format that helps them make better financial decisions? So rather than giving them a generic P&L balance sheet or cash flow statement, give them something that feels true to them, helping them manage their finances, something that shows them the impact of what happens if your return rate drops, or what happens if you take this loan. What’s that likely to impact your cash so that’s the part where I’m excited, where I think AI can increasingly drive additional financial expertise and awareness into the small business, which then has tremendous knock on effects for everyone.

Elizabeth Ross-Ronchi  32:28

Thanks Samir, yeah, so we think about using AI one. First, how are our customers using AI to discover and find us? And then, how are we using AI? So first, our customers, we’ve seen a significant shift. We’re so focused on discoverability, and we’ve seen a significant shift in customers coming to us from large language models. And so that means we’re really focused on studying that and studying what they’re looking for, so that we can create content so that they can find us more readily.  And then internally in terms of how we’re using it. Really, for us, it’s always about managing the cost. There’s so many exciting solutions out there, but we only have so many dollars that we can invest right and there’s a tremendous amount of data sources and solutions that we would love to get our hands on, but that’s a challenge, so we really have started using it to reduce our own cost of operation, whether that’s marketing, servicing, underwriting. I mean, the list goes on, data, data analysis, and more and more, we’re looking to service providers versus doing things ourselves, whether it’s Zendesk with servicing or whether it’s using getting to machine learning models within CDFIs, which is over the past couple of years, that’s a big deal just for a CDFI to use a machine learning models. Of course, banks have been using this for decades, but it at the end of the day, it really gives us the operating leverage that we need to become more financially sustainable on our lending.

Jay Long  34:12

From our end, I think there’s a couple layers, both as an internal company and then we’re seeing in the market and both sides of the platform that is the borrower and applicant. On the borrower side, like our company is called Parlay, and for those Pirates of the Caribbean fans out there, there’s that moment where they’re going to have the negotiation. It’s a really tense conversation. I think oftentimes for small business owners, walking into a lending institution can feel pretty intimidating, because they know they’re about to be assessed pretty rigorously, and the default answer usually is no. I think four out of five times it’s actually no so by decreasing barriers to access and helping them navigate the process in abstracting way the need to interact with forms and instead asking them like straightforward, plain language questions, while models in the back end can orchestrate the data that’s necessary to support lender underwriting, massively decreases time it decreases barriers to confidence and execution. So we’re seeing is it’s much more approachable on the lender side, what we’re finding is as you leverage these tools to increase your capacity to structure, clean, originate and automate a lot of the document collection preparatory stages of underwriting, your cost curve shifts left. And so we’re seeing is by taking the manual toil out of gathering documents and making API calls and cleaning information and structuring it is economically feasible to lend into segments of the market that previously were cost prohibitive. And I think, you know, one of the constant themes we see, or at least I hear, is a conversation around we wish lenders would be more proactive in reaching into some of these underserved communities. Often, the intent isn’t so much to neglect communities, so much as they can’t actually make it economically viable to engage. It’s like a cost problem, and so we’re seeing with AI is if you can remove the majority of the work that takes time that, in turn, builds in cost, you can suddenly expand reach effectively, and you can also mitigate against fraud by accelerating your capacity to take proactive steps, so you’re increasing volume and scale while decreasing risk surface area, and the net result then becomes a much more fluid and effective and permeable capital market where you’re able to leverage AI to increase outreach. For our company internally, I come from military background, so all this was net new to me and our CEO, and I will do things like cash flow analysis and sensitivity analysis based on business outcomes that if I had to know how to do organically without the benefit of YouTube and Claude would be quite challenging. With enough time Red Bull and prompting, you can get really like, nuanced understanding of where are we now, what happens with these different business decisions, and how does this better? Let us steer the ship. And so I think it’s decreased barriers to expertise and entry, while increasing your capacity to really effectively navigate these challenges.

Malika Anand  36:49

Yeah, I think I might skip how we use AI internally. I don’t know, say that much about small business, but I can, I can tell you a little bit about where we’re seeing AI get used across our pipeline and our portfolio, and I hesitate to be like Debbie Downer, but a lot of what we’re we hear is a lot of theoretical use of AI, how it’s going to make customers finding us and engaging customers so much easier, so much more not so much more natural. How it’s going to make the onboarding process, sharing your data, being able to identify the right product fit, that it’s going to get easier there, that it’s going to bring down the cost of underwriting, and therefore the cost of financing, that it’s going to make portfolio management so much better. You’re going to identify fraud sooner. But it might be that it’s coming, that all of a sudden I’m going to see a decrease in the cost of capital, and that all these people are going to unlock, you know, unlock access, and that fraud rates are going to drop. So far, we’re not seeing that. I don’t, I don’t know that. I can think of a few very interesting exceptions where AI is really being deployed in a transformative way. But right now, I think, from where we sit, it’s still in the realm of exciting potential that hopefully will manifest.

Peter Renton  38:11

You bring up a good point, because you, when we all saw in the news, Block has laid off 40% of their staff. They are a huge lender to small business, one of the one of the largest in the country. I wonder if all this reduced cost now is going to lead to reduced cost of capital for their customers. I would probably guess, though

Malika Anand  38:36

Joyce is laughing because anybody is curious?

Peter Renton  38:38

Yeah. I mean, I don’t want to pick on Block, PayPal, shop, Shopify, they all have Stripe then. I mean, they’re not necessarily going to reduce the cost of the small business, right?

Malika Anand  38:54

You said it, not me, but yeah, one would hope, if you’re dropping your if your operating costs are dropping by half. Samir, to your point, could you not now offer a substantially cheaper product to your user? But without being facetious, I do think that we can’t lose sight of what the outcomes are for the borrower, right? Whether it’s about what information or coaching or intuitive process we offer them. The truth is that we don’t yet know, or we haven’t spent enough time or care in understanding how that creates resilience and opportunity and well being for the small business like there’s just unbelievable, I think gaps in our understanding of what is the real unlock for them in terms of their financial service, access and experience, and one will hope, actually, the AI might be a part of that solution, being able to enable us to collect more data more frequently, in greater depth, and be able to analyze it in a more detailed, nuanced fashion. But, but yeah, I mean, I think the pressure, the potential for AI to decrease costs, we need to, we can’t lose sight of the fact that we would hope to see that benefit trickle down to users.

Peter Renton  40:09

Right, right? Yeah, that’s, that’s, it’s well put. So I want to turn to the lenders we have on stage here. And before we go. I think one of the things that we have to keep in mind with AI is its potential to automate bias that is already in the system, that has been in the, you know, in underwriting, for decades or centuries. Shall we say? How are you guys thinking about it? So it’s Samir and Elizabeth, I’m talking to you. They are the lenders that we have. How are your organization thinking about governance and accountability when it comes to this AI driven decisions and the potential bias that it might bring?

Elizabeth Ross-Ronchi  40:54

I can go first. So in terms of automating bias and governance, I mean, we are not using AI directly in our underwriting to the degree we have machine learning models that we’re using. We work with Experian that helps us really increase our data sets so that we have more statistically significant data sets. But in terms of AI driving underwriting, your decisioning. We’re not, we’re not there yet, but in terms of governance, and the way that we think about it is, I think that there, there’s danger, and we have to be very careful about binary decisions, binary use of AI to complete a task, and then just taking that task, as opposed to using AI to solve strategic problems and opportunities, and making sure that we’re editing, we’re reviewing, putting it back through against the strategic problem that we’re looking to solve, and then reviewing again, and that’s really across the board, no matter no matter what. So Samir, I don’t know if you would.

Samir Shergill  42:05

That’s well said the when people talk about AI right now, that’s usually a proxy for using an LLM, a large language model like Claude or Gemini. And these models are, you know, non deterministic black box models, right? And so they’re not necessarily best served for most tasks. They’re better machine learning models that underwriting statistics have done for a long time that are better served for those tasks. So I think this is one catch all people think that you just gotta ask Claude like, Hey, should I lend to this business? And that’s not how it’s gonna work, right? Where it can be useful is in the accessing, cleaning, categorizing the data. And for us, it’s making sure that we’re going back to the I’ll call it, like the raw data sources, like the sales data, the transaction data, these, these kind of like, you know, primitive data sources that are available in real time. Can you process them and then use that as a way to make the decision, not through the LLM necessarily, but through machine learning models, or even, we have human underwriters for every underwriting that we do. So I think that it’s important to have your pipeline understand where AI will fit in and then where it will not. And for the foreseeable future, I don’t think for most responsible lenders, that they’re outsourcing significant chunks of the underwriting decision to an LLM. I do think as new models emerge and there’s more kind of white box machine learning based models, then you know, we’ll reassess as that comes along.

Elizabeth Ross-Ronchi  43:28

Samir, I have to just build on. One point that you made, is that this combination of using AI and human interaction, particularly for edge cases, and where you’re lending on the margins, this is just incredibly important. It’s also important from a relationship building perspective, certainly in with our audience.

Peter Renton  43:51

Okay, so I want to, I want to touch on the LLM piece that you, that you mentioned Samir and Jay. I want to turn to you because I think it’s something that I think is one of the really interesting, things about Parlay, to me is that all of the application data that happens for every small business loan that is this is data that, you know, it’s, it’s, it’s real, it’s available, but the LLMs don’t have access to it. It’s dark, as far as they’re concerned. So how useful like, like, maybe you can talk about the data set that you that you are building, and that is being built, expanded every day, and how that can help in you know how that is really helping lenders be able to underwrite better.

Jay Long  44:39

Absolutely. So I think the first thing we’ll call out is the goal isn’t just making bad decisions faster, right? What you want to be able to do is have a really nuanced approach to decision making. The challenge with a lot of foundational models is that they’re only trained on what can be acquired. And for a lot of CDFIs and community banks and regional lenders, a non trivial amount of your data might be in PDF’s, or might be in file cabinets or might be in email, and the net result, then is the information you need to understand business growth over time is not accessible to a model, and no amount of pouring money in or building data centers changes that, like the AI is a function of what the data was trained on. And so what we did was we said, how might we originate data sets from first contact for anyone coming in through the front door, and allow that to be aggregated over time. So the lender’s unique approach to lending exists, but also they can ask new and better questions. So in the past, if I’m looking purely at automation, I can say yes or no faster, but if I’m bringing in hundreds or 1000s of inquiries over the course of a period of time, you can start asking questions like, what products should I be offering for these segments? And so now you’re able to, like, make really refined judgments on not just this individual application but also your broader go to market and how you’re serving the community. And that works only if you can effectively originate and structure data sets, which, as has been mentioned, is like, really time and labor intensive. If we’re doing this manually. If you’re having machines do it, it’s incredibly intuitive and really fast and really powerful. So we’re seeing and one of the things we’re most excited about is, how might we originate a small business lending data set that transforms understanding at the borrower at lender level, but also from like a governance perspective or even policy perspective. We’re seeing certain industries struggle early, then we can be proactive in doing that. But right now, it’s hard if everything’s trapped in email and workflows that are static. So the origination of data sets that train models allows us to be much more inclusive collectively as a community.

Peter Renton  46:34

Okay, so we’re going to hit we’re going to go to audience questions here in a little bit, but before we do, I want to talk about something that is potentially coming. So I hope you don’t mind, Malika, we’re going to go into theoretical possibilities. Now, Louis and I were chatting at dinner last night, and we were talking about how AI agents are going to come to small businesses at some point, and they’re going to have much better information, the small business owner isn’t going to need to understand the difference between this MCA product that’s 10% over nine months or a fixed or a fixed term loan or a line of credit or an equipment finance or whatever, because the AI agent is going to have all this fantastic information that will make it, will it, will understand it all for you. So where are we with that? Samir you’re, I think the one here that’s, I think, closest to you know you’re working on some of this stuff. I mean, how close are we to getting AI agents that are actually helpful for small business owners?

Samir Shergill  47:48

Yeah, if you’ll let me, I’ll first paint the picture of where we could be and where we could be actually not so far in the future is imagine if you were a small business and you had access to a world class CFO at your fingertips, and this world class CFO could always help you make the best decisions. You know, there’s still art to this. It’s not like precise, but as a lender, if you knew a small business had a world class CFO and a world class financial operations and world class data, does that change your assessment of the risk of that business? For us, it does, right? And so where we’re saying is, if we are the banking solution, and we are providing the AI to you, and you use it, then that’s this virtuous cycle whereby we then feel better lending to you, right? And so where are we on that journey? I think we’ve gotten to a point now where you can and this is what we’re building fundamentally improve the cash operations and cash planning decisions, so that they’re not constantly under the gun to say, like, Oh my God, I need $20,000 I didn’t realize I needed this, right? That example that we had earlier, which is, how can you get ahead of this to plan for the right cash solutions? How do you clean the data? How do you actually for and this is why we focused on one vertical first, the agents now are able to help you plan and then take action on that plan. So you know, if you have a plan to say that I want to maintain this much balance and pay this bill in the state, then the agent will do it for you. Now it’s early days, and it’ll evolve, but I do think things are moving quite quickly, and so our hope is that kind of, it’s kind of like the intelligence coming back in and being run by the agents, but managed by the humans, so that, I think we’re not quite there yet where the strategic decisions can be made by so you don’t have the CFO yet that can be provided, but the financial analyst and the treasury person and the accounts payable person and accounts receivable person, all these jobs that would have been done at a large company by experts can now be given to a small business.

Samir Shergill  49:40

Now, in some ways, the key is not, it’s not the it’s that’s the vision. Of course, the setup is hard, right? The setup requires replatforming and moving your operations from what you do today onto a new system. And that’s what we find. Is actually the biggest barrier to entry, is actually uprooting their existing way of doing it. And pushing it onto a new system. Now the good news is for SMBs and mid markets, this actually is easier to do than a large enterprise, so this is kind of leapfrog opportunity. So what I always tell mid market small business owners, it’s the best time to be a founder, because you’re able to move faster and uproot your old way of financial planning and management, that you hated anyways, and move on to the system, then someone that has 100 person finance team is going to struggle. So to struggle. So I think that in the short run, there’ll be a lot more adoption in the SMB mid market of these solutions. And that’s why I actually think there is a there’s, you know, pros and cons to all this stuff, but I think there’s opportunity to really level the playing field when it comes to that.

Peter Renton  50:35

How far out are we from having from a small business or middle market business, having a solution that will actually help?

Samir Shergill  50:42

We’d like to think our solution already helps. But I think that, you know, depends on what you mean by help here, if it, if you mean, like, just do it all for me, press a button. I don’t think about finances ever again. No, if it’s press a button and, well, do a bunch of work for us, then press a button, and then at that point, you know, I have a system now that will help me make better decisions, help me track my cash, run my money for me, so I can run this entire operation with, you know, five hours a week, where, before I take a three person team, we’re already there.

Peter Renton  51:19

Okay, that’s, that’s, that’s great. That’s encouraging. Okay, questions from the audience, do we have, do we have a microphone? Okay, great. There we go.

51:32

[Cameron Dawes, Milking Institute.] This is for Elizabeth. With the customized training for loan denied businesses. What has been the percentage of loan approvals once the firms has completed your training?

Elizabeth Ross-Ronchi  51:48

Yeah, thank you for that. So we have just been building this unified system, and we’re just building that data set. So it’s a hypothesis and a belief, but some early indicators is that we’re tracking borrowers who do learning, and learners who then borrow or borrow, and people who learners who have completed a learning model show higher approval rates when they go apply for a loan. So those are some of the early indications that we’re seeing, but we’re looking to track this over the coming years. Thank you for the question.

Jay Long  52:33

If we have a gap in questions, I’d just like to potentially build off the earlier conversation. One cautionary tale on this, the AI can pick out the product. Piece that I think is really relevant is the models are only as skilled as the questions you ask it. And I think it’s worth underscoring that making like bad decisions faster or incurring unconscious bias or not sufficiently framing the question you’re asking for it to deliver the product for might incur risk. And I think all that to say, as we’re looking at the future, the foundations and fundamentals the present, which is effectively training these borrowers, becomes really important, because the model will give you an answer, but if it’s not the right variables you’re solving for, is it money now? Is it best rate? Is it long term, resilient to the business? It will unintentionally take you down a path that we don’t know where it leads, but it’s probably not optimal outcome success. So I think even as these become more ubiquitous as tools that doesn’t negate the need for human judgment and shaping what ends up happening,

Peter Renton  53:32

that’s fair. Okay, question over here.

Jennifer Spaziano  53:38

Hi, Jennifer spaziano from Ascendis. I have a question for High Beam and Parlay in terms of the adoption of the tools. What are you seeing the biggest barriers are to small businesses as a small as a nonprofit organization, we have tested many different models with many different funders, and it’s hard to get small businesses to use these tools, no matter how good they may seem.

Samir Shergill  54:06

it’s a great question. What we found is you have to, and part of the reason we bundled our solution is you have to be able to provide the capital as well. So providing the lending was a core part of our value proposition, where we’re not just providing the intelligence and providing you this kind of, you know, idealized version of it’ll help some abstract decision making, but as part of that, will also give you the money today to help you grow your business. And so I think for businesses where the need capital need exists, there is that kind of pressure to make a decision, and then we’re one of the considerations set and they’re more likely to move. So I think for us, at least the bundling of the solution, so the intelligence, capital and banking all is one platform has helped, kind of with the value propositions of the business that you’re kind of picking a new financial partner, and that’s us, and so that kind of cognitively helped them, I think, make a decision on what we. Were versus some abstract AI intelligence tool that they don’t really know how to process, how to think about.

Jay Long  55:06

On our end, our answer is probably reflective of the business model. And so in that case, we extend our solution as a white label to lenders, who then bring on their small business owners that way. So the small business owner, naturally, if they’re working with the given fi kind of go down the path. So then the barrier to adoption becomes the FIS themselves. And I think here, what we’ve observed is it’s not dissimilar to any other product adoption curve. So if you think, like Jeffrey Moore’s book Crossing the Chasm talks about, you’ve got, like the far left end of the bell curve, that as soon as idea comes out, 1% of the population gets it, and they’re on board. And then a little bit larger group, still a little bit slower, understands what it can be, and they’re willing to work through bugs. Big gap. Early Majority is interested only if there’s validated business cases behind it. Late Majority moves only because of FOMO, and laggards still want rotary phones, right? So the reason that’s relevant is, I think we’ve seen that the cognitive framing has to be taking someone into the future by recognizing the opportunity cost of the present. And I think there are some people that are hesitant to displace what is known and comfortable and convenient for what is definitely the right business solution. So for us, it’s been a function of finding the teams and the institutions and the boards and this whole tapestry of decision making that happens within an fi that recognize the power of moving to the future in a way that lets them better take care of their customers in the present. And so I think once they’re willing to take the journey with us, we’ve had tremendous success, but we’re seeing the standard adoption of realizing that this is foundationally changing, not just the product you offer, but the processes within your fi and also how you train, hire and manage your workforce itself. Hopefully that’s helpful.

Peter Renton  56:47

I think we have time for one more question.

56:51

Two versions of this question. Back to the how far out are we? One is, how far are we out? Because stuff stops being free that all of our thinking about AI is because, like, Claude is free for most of us, for most use cases, or close to free. When are we going to hit the end of that runway? And second is, how much is it going to cost you to know that that world class CFO is a Chief Financial Officer and not a Chief Fraud Officer?

Samir Shergill  57:20

Yeah, it’s a good question. I’ll, I’ll give you maybe a parallel in what was true in our own product development, which is, you know, I was software engineer by training. We employ software engineers to write code. That’s our product, right? And as of November, I was still in this kind of mode of like, Yeah, it’s nice. It’s proof of concept. This AI, our best engineers are much better all this stuff. And then December, early January, these new models came out that were suddenly game changingly good, and had this emotional reaction, like, whoa. And like our best engineers now are just, they’re still involved in the process, but they’re using agents. The agents are writing the code, and now you’re much more of an Agent Manager. And this happened like very quickly. And this is with like Claude 4.6 and then you open X models, etc, and like, what’s happening now is like 4.6 a lot of it was written by 4.5 so the models are helping write the next model, right? And so the growth curve is just accelerating. So the heuristic I have is, if the model is somewhat good at it today, kind of clunky, but kind of not in the right work. But the curve at which it’s improving in the next three to six months is rapid. So just to answer your question directly, I don’t know how that applies to financial services directly, and there is a risk sure that the black box learning on the CFO, like it’s what was it training on its training on the best practices from 50 books that people have written on how to be a good CFO, etc, etc, and Gemini and Google and Claude, they control that corpus of knowledge. What we can do is we can see how well it’s working. So all we do is we try to take the top three or four models, train them on the day that we see, see the recommendations they give, assess if we believe those are correct or not, and then we roll them out accordingly. But I think there no one knows like it could be that it takes us a year for these models to get better at financials, financial operations and services. I think each functional area, as long as performed on a screen, it will come at some point. But I don’t think the good, I think the true answers is, I don’t think anyone knows when the models will be excellent at that. If you look at like, you know, music, you would think that music, something is a creative enterprise that, you know, would be last in line. But a lot of the we’ve seen these platforms now where digital music on a prompt is actually good enough that people are consuming it, and it’s competing with human composed music, right? So what does that mean for, you know, something like financial operations? I don’t know, but I do think in the next 3, 6, 9, months, there will be models that evolve that’ll be just like, whoa. This can be a good proxy for a CFO, of course, with the caveat that we’ll have to assess the quality of the advice, etc.

Peter Renton  59:56

Okay, I think that’s all we have time for. So thank you very much. Everybody. Appreciate your attention. [Applause]

Louis Caditz-Peck  00:05

All right, thanks. Well, I’m excited to continue the conversation. It’s been so rich. We’ve heard from we’ve heard from researchers, we’ve heard from technologists, we’ve heard from investors, we heard from Rebecca and other small business owners. So I’m excited that we’re here to continue the conversation and turn it towards drilling down a little more on what the challenges that small businesses are facing are in financing and some solutions for what we could do together to improve it. And so let’s introduce the panelists, which continue this theme of bringing together voices from this the broadest swath. So let’s, let’s start with Karida and move down.

Karida Collins  00:49

Okay, so my name is Karida  Collins, and I am a small business owner. I own a business called Neighborhood Fiber Company. It is a hand dyed yarn company catering mostly to hand knitters, crocheters, yarn shops, that kind of thing.

Ashley Urisman 01:11

Can you guys hear me? Yes, this is working. Hi. I’m Ashley Urisman. I am the Director of State Government Affairs for the American FinTech Council.

Jesse Van Tol  01:19

And Jesse Van Tol, President and CEO of the National Community Reinvestment Coalition, a coalition of 700 community-based organizations around the country dedicated to building a just economy in the realm of housing, small business, etc. Thanks.

Louis Caditz-Peck  01:36

So Karida, let’s start with you. How did you start Neighborhood Fiber Company and what has it become today?

Karida Collins  01:42

Okay, so way back in 2006 when I was young and in, you know, the early bloom of life, I Idecided I wanted to have a yarn business. I was already knitting. I was managing a yarn store, and I had finished grad school, and realized that I didn’t want to continue on that path, so I decided that I should start a hand dyed yarn business, based on the fact that I am good with color and that I was confident enough that I would figure the rest of it out. It was in a basement apartment. It was very gritty in terms of getting started and, you know, since then, and that was, that was in, that was 20 years ago. So since then, I have, you know, moved out of DC, expanded things, you know, gone from being a one employee kind of shop to an additional five full time employees at one point, and you know, I just keep pivoting, trying to make it, keep it, keep it going. I think that’s what all small business owners are doing right now. We’re all just trying to keep it going.

Louis Caditz-Peck  03:00

And so Jesse, helping small business owners like Karida is core to the work that NCRC and its 700 members do. Why is that part of that work?

Jesse Van Tol  03:10

Yeah, when we think about, you know, our work to address wealth inequality and racial wealth inequality in particular, we think about, we think about communities and what’s important in a community. So healthy, vibrant community has affordable housing, has great public assets and has great small businesses. And so when we think about, you know, sort of the wealth building up ladders in America, home ownership, one significant one for many people that has disparate outcomes and unequal opportunities based on race and other things, small business too. The ability to start a small business, grow a small business can be transformational, not just for an individual, for their family in terms of economic outcomes, but for a community as well, and so for us, we’re our members are local community economic developers who are working to ensure that communities are vibrant, and small businesses are a critical component of that.

Louis Caditz-Peck  04:20

Thanks Jesse and Karida. Talking about that vibrancy, I wonder if you could share a little more about the what goes on at your storefront that you have now in Baltimore, and maybe some highlights from your business.

Karida Collins  04:31

Sure, so when you talk about community, that’s actually a big part of my business, all of my colors are named for neighborhoods. I always wanted to emphasize the beauty that can be found in urban settings, instead of, you know, everything being named for and based on, like nature photographs and things like that. I was the Urban Yarn Company, which means exactly what you think it means when I first got started, not just because I was living in DC. Over the course of years, with the business, I’ve made it a priority to invest in the community, to the point that in 2020 I was able to raise over $100,000 and start a donor advised fund. So basically, I had gotten a reputation for using the yarn to raise money and make donations, and people were looking for a way to do something, and a couple of companies wanted to just write me a check. And I was like, but I’m not a nonprofit. I don’t I’m a for profit. So I created a GoFundMe, and was shooting for $10 grand, $10000 and because that’s the minimum you need to start a donor advised fund. And instead, I raised over $100000 in 30 days, just from, like, small donations from customers and friends of customers. And you know, we’ve donated over $150,000 to nonprofits, primarily based in Baltimore, Maryland, which is where I am, which is where I’m based, where I live, and primarily black-led.

Louis Caditz-Peck  06:22

Thanks. Karida, so over the course of this business, what role has financing played in it?

Karida Collins  06:31

I think every small business owner has a financing story. I think I have at least five or six. You know, I started with a small loan from my mom, $1,000 which she was serious about having me pay back. And you know, since then, I think that I’ve had every loan product available, good, bad and worse. The merchant cash advances from companies that were offering me products I didn’t quite understand at the time. I never thought that I wouldn’t have the same protections that I have as a consumer, an individual consumer, in business, I really, I truly believed that, you know, because I’m still just an individual, right? And most of us small business owners are like your proverbial Mom and Pop. I thought that I would have the same sort of requirements for disclosure, and you know, then I realized later, when I’m in a bad situation and all of my money is being like withdrawn from my checking account on a daily or weekly basis, like, oh, you know what? I don’t know what the APR on this is. And, you know what, maybe I can’t afford this loan. And if I had been at a bank or a CDFI, or, you know, someplace like that, I would have maybe had a little more information, and maybe somebody would have gone over what I can afford to repay based on all of my expenses and not just my revenue. I’ve had loans from PayPal, Shopify, Square. One that was through, I have a story. Do you want my story, my, my, including all, all of the company’s story?

Louis Caditz-Peck  08:37

Sure. Let’s hear it, Karida

Karida Collins  08:38

Okay, so I took out a loan from web bank through PayPal, and I was getting they were taking weekly withdrawals. I ran into some tough times because tariffs, Ooh, boy.

Louis Caditz-Peck  08:59

This is a familiar theme from this panel.

Karida Collins  09:00

Yeah, I think that. Well, I think this story is, like so many people’s story. It’s not even really unique. I think it’s very common that, you know, you make plans. Small businesses owners are optimists, even if we don’t feel like we are, we are we believe that our sales are going to be good. We believe that the future is going to be better than the current situation, even we don’t, even when we don’t say that, the fact that we’re still running small businesses is the proof, right? So I have this Web Bank loan. They’re taking out, like $1,200 a week, and I’m and my sales are falling, and my expenses are rising. And I actually had a health situation that put me in the hospital for nine days, and when I came out of that, I was not able to sort of keep working at the level that I had been. I was really burnt out. So all of this is going on, and I missed like six payments. Because there was no money in my account for them to take. And I was just getting back to getting things together, and all of a sudden my online store, which is my primary source of income, stops depositing money into my checking account. My online store is with Shopify, so Shopify won’t give me any of the money from the sales that I’m making because Web Bank has placed a lien on the money through Stripe, who processes payments for Shopify. Now I didn’t know that at the time. I just knew that Shopify wasn’t giving my money, but because I also had a loan with Shopify, they were still taking the money, like their percentage of the sales from my checking account too. So not only am I not getting any money, but even when I have sales, it’s costing me money.

Karida Collins  10:58

And so at that point, I’m running up credit cards, right? Because I don’t want to lose my customers. I want to ship them their products. And closing down the store seems like, just, like, if I do that, it’s over, right? Like, that’s the end. And so I am trying to figure out what’s going on. It took me weeks to even find out that I had a lien, and that was why they weren’t giving me my money. When you want to get in touch with Shopify, you have to use the little chat bot, and first use the bot, and then a person comes on and they will help you, but they can only help you if you have, like, some low level problems. Certain things have to be run up the chain to a different committee, and like, liens was definitely above the pay grade of whoever was doing their chat bot thing, and they kept telling me, you’ll get an email explaining what’s going on. Just wait. We’re going to run this up the chain. So I do this four or five times, and by the end, because I am a polite person, and I know that working in customer service means that you deal with terrible people, so I’m trying to be really nice to them and saying things like, I understand that this isn’t your fault, but you’re the only person that I am able to be in touch with, and so I am getting very angry. But, you know, typing all of it so it doesn’t have the same real force

Louis Caditz-Peck  12:19

Or a smiley at the end.

Karida Collins  12:21

Yeah, like I’m furious at you right now, heart emoji. And at the same time, I know in my head that this has something to do with my loan from Web Bank. So I get with them, I make a lump sum payment to them that I borrowed from my mom, and I get right with them, like we adjust, they adjust my payments. I’m back in their good graces. I’m making my payments. And then they tell me, yes, because of the lien against you. And I’m like, The what now, who? So that’s how I found out I had a lien. It was actually from Web Bank dressed up like PayPal, and so at that point, I’ve got Web Bank, PayPal and Stripe, all somehow having to do with where my money is. Web Bank tells me that they have removed the lien. I’m like, great. Well, actually, first they said I had to make four payments before they would lift the lien. So that was another month of sales. I make the four payments, they take off the lien. All of a sudden, I’m like, all right, money is going to start flowing. And it did. It started flowing again. But all of the money from the sales that I made during the time period when the lien was active, none of that money comes to me. And I don’t know why. All I know is that it says that there’s this balance of over $10,000 in Shopify, and it’s just like, not, it’s not part of the payout. And I’m like, well, where’s my f’n money? Like, come on. So I, you know, again, like, I keep going to Shopify, because for me, like, what I can tell web banks telling me that they didn’t do it, Shopify is the only person I’m dealing with. So I’m like, all right, you guys, I can’t get anybody to get in touch with me. They keep promising me emails, nothing’s happening until finally, like, one night at, like, I don’t know, like 11:30 on a weeknight, which, if you have an eight year old like I do, that’s the middle of the night. I’m, like, frustrated and stressed out. And so I make this crazy social media post that’s like, I don’t know why Shopify has my money, and they won’t give it to me, but it’s over $10,000 and you guys, I do not know what to do, and I can’t believe I’m making this post. And here are all these screenshots. And so the knitting world is actually, there are a lot of us.

Louis Caditz-Peck  15:05

There are, don’t piss off the knitters.

Karida Collins  15:08

I mean, people have learned. People have learned. So I post this, I have like 30,000 followers on Instagram, and all of a sudden they’re all tagging Shopify, and they’re posting it on their pages, and then their friends are tagging Shopify. Shopify, do better, Shopify. How dare you treat a woman owned business like this? You know, Shopify, this is not a good look, and it was overwhelming at first, but then all of a sudden, I’m getting emails from Shopify. Suddenly there’s someone available to explain this to me. One of them even had the nerve to sound kind of pissed off, and that’s what it took for me to find out that the lien that had been explained to me was lifted, but that the money that they had collected was actually going to Web Bank and was not coming back to me. So even though I had squared everything with web bank, they never told me that they were going to also keep that money. Shopify never told me stripe, who was actually like processing the payments and moving the money around. Never told me. I just had to figure it out by blasting them on the internet. And so now I’m, you know, so that money’s just gone like it went towards my loan balance, which is great. The loan balance is lower, but could have really used that $10,000.

Louis Caditz-Peck  16:44

Karida, thanks for sharing that. There is a lot to unpack there. A lot of that really got into FinTech, so that might be a good time to Ashley to bring you into the conversation.

Ashley Urisman  16:53

Absolutely, yeah. So I’m with the American FinTech Council. Our mission is to promote a transparent, inclusive and customer centric financial system and to advocate for sound public policy. We are standards based organization. We promote, like I said, transparency. We support interest rate caps. And we really want to create a FinTech system, a financial system that meets people where they are. We have 150 members. None of the organizations you named are AFC members. Just want to say that right now, so I’m really sorry that that happened to you, because what we are really trying to build at AFC is a system that works for consumers and business owners like you, by leveraging online commerce and using this innovation and this technology to make capital more accessible and to make it work for people, and by using the efficiency that new technology creates to pass on savings and pass on access to financial systems that work to small business owners like yourself. And you know, we’ve been working with Louis and his organization, the Response Responsible Business Lending Coalition on we are co signers to his small business borrower Bill of Rights, and we are working for advocating, working on, advocating for legislation that requires the disclosure of APR on small business loans so that people like yourself, folks who are financially literate, who are familiar with financial tools and loans like mortgages and things like that, are speaking the same language when you’re comparing financial products, whether that be your mortgage for your home, the interest rate on your personal credit card, or the financial products you’re using to fund your business. So we are we’re so sorry that happened to you. We’re working hard to make sure that it doesn’t happen again and that it doesn’t happen to other people as well.

Louis Caditz-Peck  18:40

I appreciate that. Thanks. Well, Ashley, I want to give due credit to all of the folks that got together to conceive of and write the Small Business Owner Bill of Rights. So I’m proud that I get to stand up here and be the face of it. I wonder if you could speak to how AFC chose, why AFC chose to endorse it, and what it has to do with your work and what it means to you guys.

Ashley Urisman  19:02

Yeah, I think it fits very neatly into our mission statement. I think the small business borrow Bill of Rights is a very simple kind of concept I have kind of the tenants written out here. It’s the right to transparent pricing in terms so things like APR disclosures, that’s, you know, basic transparency. It’s a right to, you know, giving consumers access to non abusive products. It’s a right to have responsible underwriting for individual loans, that is, you know, ascertaining a borrower’s ability to repay and understanding what some of your expenses are beyond just what you owe the borrower. Right? So if you are taking out, for example, a loan to refinance personal credit card debt, you’re going to be asked questions about, what is your income, but also, what is your housing cost, what are some of your other expenses that are going to impact your ability to repay these loans? But you know, some of the products that you were served did not take that into account, and were sort of draining your business when you had other expenses to to address. So we want to make sure that that is a standard that takes hold for small business products, the right to fair treatment from from brokers. That’s, again, I don’t know that you had fair treatment, and if you didn’t have a social media following, would you have been able to address the issues you were having with your loan servicers. The right to inclusive credit access, not everyone has a right to credit and is able to access the resources they need to finance their ideas and the right to fair collection practices, which, again, you weren’t really given the right to work out your issues until you went viral for complaining about your problems. So it’s a really simple concept that, again, helps people like yourself be able to, you know, run your business, and it’s a it creates a fair financial system that gives people access to credit and greases the wheels of the economy.

Louis Caditz-Peck  21:08

Thanks Ashley, so Jesse, what do you hear? You know, you get a broad view of how small business financing is being experienced in communities all over the country. What are you hearing from your members?

Jesse Van Tol  21:18

Yeah, unfortunately, Karida’s story, which is heartbreaking, is is all too common. I mean, it’s echoes of a lot of what we’re hearing elsewhere. I mean, I think that really illustrates why the Small Business Borrowers Bill of Rights was important and necessary, why the Responsible Business Lending Coalition is critical today. So we see small business borrowers, whether they show up at our CDFI at one of the 120 or so CDFIs in the NCRC membership network, whether they show up at the doorsteps of one of our members who works with small businesses, we see a lot of the same issues that the what you said, Karida, about I didn’t quite understand, is something that we’re hearing a lot of our members in New Jersey have published a piece several months ago. Just the costs are staggering. So in addition to sort of people either losing the business or going into default, people are paying more for their financing. In fact, financing is sort of ever present. A lot of small businesses are inundated with financing offers, but at very expensive rates and potentially with very predatory terms practices and abuses. So our member New Jersey Citizen Action published a piece showing that New Jersey small businesses are overpaying between $133 million to $630 million annually in unnecessary interest in fees, often to out of state financing firms, merchant, cash advance, some of the types of firms that were mentioned earlier. And so that’s a staggering amount of money. And it’s even worse for black and brown businesses, who are often targeted for sort of predatory inclusion financing that is more expensive, you know, available, but much more expensive. And so those are trends that we see in a variety of ways.

Jesse Van Tol  23:28

And I think unfortunately, the sort of aspects of your story really illustrate, you know, on some levels, we see technological innovation in small business financing, things that look like inefficiencies have sometimes baked into them, whether by intention and regulation or just as a consequence of the way things were done, they have baked into them certain rights, certain friction points that actually create a better experience for the borrower. And so while we see interesting innovations in the small business financing space, some part of that looks like just a greater ability to extract revenue from the small business in a variety of ways, including through unfair practices and treatment.

Louis Caditz-Peck  24:21

So Jesse, you touched on a theme that I wanted to get folks reaction to on the panel, which is access to capital. And the main issue we have talked about for capital for small businesses you know, for decades, has been the problem that small businesses face in financing, is access to capital. And I wonder if folks could react to Karida, what’s your experience been? Is access to capital a challenge, and is that? Is that a helpful frame?

Karida Collins  24:47

Still? I think that access to traditional, traditionally presented capital, like bank loans, is still something that you know, is tight, like after the the mortgage bubble burst and everything crashed, and interest rates went up, and it was really hard to get a loan. And I don’t think that it’s that much easier now, but at the same time, the sort of the other lenders are like, it’s easy to get capital. You know, I’ve got five phone calls, five voicemails today from people who swear that that I should have a $3 million line of credit. And, you know that is so those calls are so ridiculous that it’s obviously a scam. Like it feels like a scam, but once you have one UCC lien, your information is out there, and they are targeting you, and they are calling you, they are texting you, they are emailing you. They are mailing you stuff with that looks like it’s a check, right? And then you open it, and it’s like line of credit for business owner. There’s plenty of that money out there, and it’s, I think what it’s done is it’s overshadowed the fact that there is still a need for legitimate capital like I should be able to walk into the bank and get a bank loan. I should there should be more like, I should be able, I have a CDFI loan, right? And I only ended up with that because of specific people who took an interest in what I was doing. Because for a while, like Baltimore was really investing money into the arts and into small businesses, and, you know, I got a couple grants. And because of that, I caught the attention of people who were like, here, let me put you with Baltimore Community Lending. And that was really helpful, and it was really important. And so that, yeah, I mean, the money is there, but it’s it’s trash, like it’s garbage.

Louis Caditz-Peck  27:12

So Ashley, I wonder, you know, obviously you described your work as advancing responsible fintech. And I think something that we heard in in what Karida was framing out was traditional capital can be a challenge to access. There’s all this new stuff. How does the work that you do as the American FinTech council with the Small Business Borrowers Bill of Rights, the associated advocacy connect to helping support the development of really innovative and responsible options that are, that are FinTech or otherwise non bank, or connected to bank, and all the complicated ways that that you do?

Ashley Urisman  27:51

Yeah, I think there’s a few ways it plays in, first of all, very specifically with the Small Business Borrowers Bill of Rights and some of the legislation we’ve been working on. It creates price transparency. We have been advocating for APR disclosure bills, working on a bill in my home state of Illinois. I know there was just a hearing in Maryland on a similar bill, so that small business owners are able to compare the offers they’re getting and make an educated decision about what is going to be right for them. The other piece is the FinTech industry, I think, takes it helps meet borrowers where they are, and it might even take, you know, some of the bias out of lending and give borrowers an opportunity to access capital they may not have, and as long as there are responsible guardrails in place to ensure that these products are, you know, not exorbitantly priced, that they are not you know what happened with you, with some of your vendors, is not happening across the board. You know, I’m sure you’re someone who faces bias when you maybe walk into a bank branch. That’s not something you’re going to get if you’re filling out necessarily an application online. So it really helps, you know, blind the process based on the merit of a business versus, you know, other built in biases as well. So I think that is certainly an avenue that it helps create equity and access to capital.

Louis Caditz-Peck  29:17

Thanks, Ashley, well, Jesse, that’s something I know NCRC has done original research on,

Louis Caditz-Peck  29:22

Yeah, I mean, I think I’m still created, you know, but trash, would you call it? Trash money? You know, access to capital is, is a significant challenges for most small businesses. And you know, when we, when we think about the small business ecosystem, you have a situation today where there are more small businesses, really, than ever before, partially because of population growth and other things, but less small businesses that sort of scale, this sort of startup dynamism problem, and there are a lot of reasons for that. Corporate concentration. Amazon, et cetera, but access to capital is certainly one of them, and we continue to see whether it’s walking into a traditional bank, where our mystery shopping and testing has show that people face discrimination. They face disparities in how they’re treated. Not every product is discussed with them. It’s clearly a challenge if you’re accessing capital or credit from a bank. But so too, when we look at some of these, you know, kind of predatory financing operations, Merchant Cash Advance, there are really significant challenges with more predatory forms of financing small businesses. So it’s still, I think any small business would tell you there was a statistic on the panel earlier about cash flow, 82% was it was someone out there that use the statistic. It’s still a really significant factor for small businesses. I think the research shows you know that this is a major factor in their growth and scaling.

Jesse Van Tol  31:05

And yeah, I think there are some ways in which you can think about technological innovation as exciting. Every small business owner potentially has a consumer attorney in their pocket, potentially has the ability to analyze in real time their credit contracts thanks to the use of AI tools, could potentially, you know, sort of be given in real time questions to ask or things to consider or comparisons to, is this the best sort of loan product available to you that is a potential outcome of, you know, some of the kind of technological changes we’re seeing, AI in particular, and I think there’s also tremendous opportunity for, you know, what results from that to be extractive, you know, I think I said earlier, sort of shades of the subprime mortgage crisis. I, you know, I remember during the midst of the subprime mortgage crisis, or before, really we knew it as a crisis, it was like, you know, there’s these, you know, technology forward, companies called mortgage companies that are making more mortgages than banks. And that was, you know, that was part of the competitive advantages of Countrywide and others is, is, in fact, you know, was there investment in technology? And we know how that story sort of ended, you know the banking system kind of followed into the abyss, and we ended up with a financial crisis as a result.

Jesse Van Tol  32:48

And I think that there are shades of similar things happening today in the small business lending landscape, which is why I think having standards, whether that’s ASC, the Small Business Borrowers Bill of Rights, the Responsible Business Lending Coalition, having basic disclosures. I think the small business Tila disclosures that we’re working on together are incredibly important. 1071, as a data disclosure element, so that we know who is getting small business lending and on what terms. These are all policy issues that we’re working on to make sure that at least we have a collective understanding and that there are basic protections in place to ensure that some of these kinds of things don’t happen.

Karida Collins  33:39

Can I add one thing about bias? So I’ve been a black woman my whole life, so when I walked into the bank and was facing bias or whatever, when I would tell people about my business, I expected that specific bias. Though, what I didn’t expect is that, because my business is a lady business, it’s a craft business. The expectation like that people will be like, oh, so you have, like, an Etsy shop, and I’m like, I had a million dollars in revenue last year. Like, I’m I’m paying health insurance for employees. You can back off so, you know, it’s hard to get in certain industries it’s hard to get people to take you seriously, just because of what people think the industry is. I remember when there was this big to do because some of venture capitalist bros announced that they were going to start investing in yarn things, and they were like, did you know that there are more knitters than golfers? Like, everybody’s mind is blown, and there we’re we just need to do this, because these women, they they knit, and, you know, again, you don’t come for the knitters, because they’re crazy. And there’s so many of them. And it kind of like, I think. They ate them. I think they actually ate them, and now they’re no more, but sort of different kinds of businesses that may not have the same like, what if you say you’re open an accounting firm, you’re running an accounting firm, versus running a handyman company, or something like being able to put that in to a situation, into a some technologically based lending stuff that would maybe allow you to be taken seriously in a way that you wouldn’t in the bank just because of the type of business that you run.

Louis Caditz-Peck  35:34

Thanks, Karida, I think that so many of the problems and concerns have been illustrated so far on this panel and also in the conversations earlier today. So let’s start talking about solutions, and let’s start Ashley with with one that has already been in the conversation so far, the policy work that that you and NCRC and Responsible Business Lending Coalition and others are working on together.

Ashley Urisman  36:02

I think it all comes back to transparency. Like I said, empowering borrowers be that small business owners individuals to be armed with the information they need to make they need in order to make the best financial decisions for themselves and for their businesses. Like I said, the APR transparency bills are out there. I know they have already been passed in New York and California, those state economies have not suffered because of pricing transparency. We have a bill we’re working on in Illinois. There’s a bill that, as I mentioned, was heard earlier this week in Maryland. So hopefully similar policies can be replicated across the US and create better transparency for small business owners.

Louis Caditz-Peck  36:44

Thanks, Ashley and Jesse. NCRC is a you know, known as a major policy voice federally, and you’re also active in the States. Anything you’d like to share about the state policy work that you’re doing and what impact it’s accomplishing for your members.

Jesse Van Tol  36:58

Yeah, I think, you know, we have been active with the Responsible Business Lending Coalition and working on state bills, state TLA disclosures. I know we’ve worked together to pass seven state bills. I know, just the other day, on Tuesday, we were in Maryland, our members lobbying on this issue. In fact, one of our members is here today, who was working with us on that so really important that we think about moving these frameworks, especially given the federal policy context, forward at the state level, both to have a minimum standard in important places, but also to put some pressure on for federal reform. I think it’s, you know, sort of astounding that we can’t, sort of all agree that, at a minimum, APR disclosure is an important thing, that we have the data back to sort of federal policy through 1071 to know who’s receiving a small business loan From, whether it’s the banks who will be covered under 1071 moving forward or merchant cash advance companies who were excluded from the most recent version of of 1071 so we we, along with Woodstock and Brent’s here from Woodstock, rise economy and Main Street Alliance are suing the Trump administration over over their 1071 rule to make sure that we have that data disclosure, which is, you know, core and fundamental to our understanding, certainly, of equity within small business lending and small business lending equitable, but also, more fundamentally, just the market. What’s happening within the realm of small business lending? Who’s getting what kinds of loans at what price is, you know, has been core and fundamental to our understanding of mortgage markets for, you know, decades now, and we need that data on the small business lending side as well.

Louis Caditz-Peck  39:01

Thanks Jesse. So Ashley, in the work that you’ve been doing in Illinois, what have you seen? You know, we just heard NCRC working on this, and NCRC members in AFC. What have you seen about who this small business advocacy work brings together and and also where it divides?

Ashley Urisman  39:21

Yeah, it’s been a really interesting coalition. It’s not necessarily a coalition that AFC has the privilege of working with often, but it’s really been great to see advocates, kind of across the board, come together, advocates like ourselves who support, you know, responsible business practices and responsible innovation, consumer advocate groups, social justice advocates as well. So it’s been really great to collaborate on this issue, to kind of help support everyone in the state like Illinois that just is so diverse and there’s so much need for access to fair capital in the state.

Louis Caditz-Peck  39:57

Thanks, Ashley. I. And let’s, before we go to questions, let’s look forward. Karida, if you could ask policymakers for for one change that you think would help folks, what would it be?

Karida Collins  40:16

I would want the same two? Well, you know, I could make I think the most important thing, though, is, you know, bills like the Truth in Lending Act, I want the same protections and requirements for disclosures, all of the things that I take for granted as an individual person, as an individual consumer. I would like to have those same protections as a small business owner, because most of us are individuals, and, you know, I have some talking points that you guys gave me that I appreciate, because all of them like, I’m not here to give you numbers and statistics, because I’m here for the story you guys have the stats, but it was surprising to me to be allowed to see that only 18% of small businesses get loans from banks. And then I thought about it, and it made sense, because the rest of us are using friends and family and personal credit cards, and that doesn’t open up the same amount of capital that would be available if it were coming from a bank or and these products are products right where we are consuming these products, we can’t compare them right now. If we’re talking about MCAS and the different kinds of loans that people are emailing me about right now, because we don’t have that information. So I would think APR is just like the barest, the bare minimum, like, come on. I really, I truly, did not expect that. I didn’t know that I wouldn’t be able to find out the APR one alone, without a super computer and an advanced degree, just because it’s so hidden.

Louis Caditz-Peck  42:10

Yeah I know we’ve got some of the researchers in the Federal Reserve, in the office and in the room, and one of the studies that they did on on this question of small business disclosures and what information is helpful to small businesses. Had had a research experiment about that that really struck me, which was they, they asked, they showed small business owners disclosures, as they are used on small business products today. And they said, do these tell you everything you need to know? And everybody said, yes. And then they said, Is there anything else you’d want to know that’s not on here? And nobody said yes. And then they said, okay, do you know what the interest rate is? And everybody said yes. And then they said, kay, what’s the interest rate? And only at that point did people realize they actually didn’t know. And the Fed researchers said, well, guess. And the guesses just were all over the board. They ranged, if I’m remembering right, from, you know, low single digits, to someone said a whopping 30% and then the federal reserve study said actually, the effective interest rate, or APR, was 60% and I think I raised that to just illustrate that it’s not it’s not obvious to people that they’re not getting information when it’s presented in a way that is presented as this is the information you need. So as a final question, before we go to questions, Ashley and Jesse, could you each speak to what you particularly would see as progress on helping small businesses with respect to financing over the next couple years,

Ashley Urisman  43:46

I think just to build on what has been said before, greater transparency, mandating Tila disclosures, or similar disclosures for small business borrowers, and Building kind of a uniform national framework for that,

Jesse Van Tol 44:03

I’m gonna go big. I, you know, small businesses, which are so often sort of lifted up by politicians, is kind of, you know, the most important kind of constituency to really, in a sense of the American political system are, are, I think should, should be the most powerful constituency in America. And yet they’re not. And so I think certainly, the kinds of things that we’re advocating for at the state level, APR, disclosure, we ought to have that at the federal level as well. We need to get 1071, done across the finish line. We need that data. My son is 15 years old. I will have raised the whole adult child between the time that we passed 1071 as part of Dodd Frank, and by the time it goes into effect, it’s high past time that we do that. But fundamentally, we need both an economic system and a system of financing that better supports small businesses in a major way. And so I think we need to think big about that. I think I think we need to rethink expand the SBA. When we look at mortgage markets, which are deep and liquid and and largely standardized, we don’t have the same in small business financings, in part, because of we don’t have the same kind of secondary market mechanism to do that. So I think, I think we can think big. I think, in fact, you’ve got a, you know, a potentially very powerful political constituency that’s really being underserved, not just by sort of the financial system, but also by by the politics of the country at this time. And so I think, I think, you know, I think we can think big and bold about what needs to happen, and I hope that there is a movement to do that.

Louis Caditz-Peck  46:01

Thanks everyone. Let’s hear from the folks in the room what’s on your mind.

46:14

Good afternoon. [Cameron Dawes, the Milken Institute], what innovations and policies. Are you all seeing that are emerging, that are supporting small businesses in traditionally red states?

Ashley Urisman  46:35

In I’m sorry to clarify the question, in traditionally red states, states that lean politically red.politically red.

Ashley Urisman  46:53

I was just in Ohio, so we have a very wide coalition in our association, and that’s we. Those were not the issues that we were discussing in Ohio.

Louis Caditz-Peck  47:04

So two things come to mind. So on this issue of small business financial protection in particular, that really has been an issue that has gotten the attention of both Democrat and Republican politicians. So talking about red states, this summer, the state of Texas passed a bill trying to crack down on predatory lending the way that they conceived it. You know, candidly this that bill wasn’t a bill that RBLC was, was was driving or endorsed, but that was structured as a crackdown on merchant cash advance, as we shared earlier, you know, the perspective of the Responsible Business Lending Coalition is what’s important are that any type of financing is delivered with responsible practices. So that didn’t quite fit the way that we framed it, but that was, you know, something that united the whole Texas Legislature and was signed by Governor Abbott. Ultimately, it wasn’t, I don’t think, going to be an effective law, because it was focused only on merchant cash advance, and it was signed in June, and by July, they were advertising business as usual in Texas. They just restructured their products to be called loans. 

Louis Caditz-Peck  48:18

But Jesse and Ashley were talking about the testimony we gave in Tuesday, on Tuesday in Maryland, Steve was there for some of that really long hearing. This was a hearing on a small business Truth in Lending bill that started at one. The bill was 19th. It didn’t get called until 7pm and the sponsor of that bill is a Democrat, and by the time the bill got called, he had to leave to go chair another committee. And so a Republican colleague, who is also a small business owner, picked up the bill and presented it for him and said, it is a mystery to me why we don’t do this, and just within the Trump administration, you know, we had the chair of the FTC in his report to Congress, has talked about he sounded a lot like Karida, actually, about how small business owners are also consumers and are and that the FTC under under Chair Ferguson is doing work to protect small businesses from predatory financing. We’ve had the Small Business Administration under under the current administration, talk about how they also been really focused on on merchant cash advance structured products and and have actually banned SBA loans from being used to refinance people out of those because of concern that those product structures are leading to a very high fail rate by small businesses, and some strong language was thrown around by them. So this is an issue that brings everybody together, and so I’m glad you asked that question.

Louis Caditz-Peck  49:55

Let me just add, I mean, this is, this is not necessarily an innovation in the sense that it’s. New. But I mean the whole existence of the CDFI industry, which experiences bipartisan support, and which has been under attack recently, but continues to have bipartisan support in in blue and red states, some of you probably know there are more CDFIs in the state of Mississippi than there are anywhere else, I think, is what is, historically, one innovation. I mean, I see in more rural communities, and tends to be in more red states Pretty significant cooperative and collective financing arrangements. And I hear more I haven’t necessarily seen the seen the policy to back it up, but I hear more conversation about concern about corporate monopolies, with respect, in particular to agriculture, some of the finance and the ways in which farm equipment is financed than ever before. And I suspect that that will, in some way, shape or form, lead to political action at some point at the state level.

Louis Caditz-Peck  51:01

I think we probably have time for two more questions. One more question.

51:06

[Steve Schaff from Community Finance Academy], Karida, you had mentioned that you had done a crowdfund. Pretty successful. $100,000 is pretty impressive. If you had to do it all over again, would you have started with a crowdfund campaign first given what you lived through with a more conventional route.

Karida Collins  51:26

No, the crowdfund campaign was to raise money for charity, and it actually because it raised so much money so quickly, Go Fund Me was honoring me as a Go Fund Me hero, while simultaneously investigating me for doing they thought it was fraudulent, and I actually had to set it up so that the money didn’t go through me. It had to go directly from GoFundMe to Baltimore community foundation. I have always had this idea that I shouldn’t be asking the community for money for myself. It’s like, I just feel like, oh, I should be able to do this. I should be able to stand on my own. And you know, now I can see that that’s actually, that’s just okay, that’s bullshit. We all need each other, mutual aid community support. Like, now I’m there, but it’s still like, it’s hard for me to sort of be like, I need help. Can you help me?

Louis Caditz-Peck  52:35

But that’s what we’re all here to do.

Karida Collins  52:37

Gross.

Louis  52:38

Do you think there’s time for Nope, there’s not time for one more. There is time. Okay.

Eric Weaver  52:51

Eric Weaver, again, I carpooled with Louis out to the hearing in Annapolis on Tuesday, and talking to him was was both inspiring, because he’s doing great work, and a bit sobering, because he was explaining that, you know, what we’re doing with these TLA bills is great, and it’s gonna, you know, it can impact some of the lenders, but the biggest lenders, the Square, the Block Square, whatever it is, PayPal, they’re now. They all have bank charters now, and a bank charter, you know, gets you out of having to comply with state laws. It’s not that simple, but largely .So you know, we’re going to have to figure out how to somehow have these standards apply to banks, and that’s like a whole nother level of uphill battle. I don’t know if any of you have any thoughts on kind of how we address that.

Karida Collins  53:56

Personally, I’m looking for a way to be too big to fail.

Louis Caditz-Peck  54:02

Something I’ll just comment about this is, you know, for the most part, the challenge that folks have talked about on this panel so far with respect to banks and access to capital is the access the capital that banks are providing is really good, and it’s what people want to be able to access, and they want more of it. And so I think that a big policy goal is, how do we make that kind of capital more accessible? And I think it’s going to, it is going to be a challenge for the banking system, to the extent that the kinds of products that have drawn all of this scrutiny and concern move into the banking system, that’s going to make that’s going to bring up challenges for banks, for how do they distinguish themselves from that themselves from that, what kind of regulatory pressure it puts on all the banks. And so I hope there’s some kind of neat resolution to that.

Louis Caditz-Peck  54:49

It really highlights why we need a strong CFPB that is doing its job so many people in the room work to set up the CFPB, the CFPB. Was envisioned, of course, to address a series of challenges which were written into Dodd Frank, but also to think about emerging problems and challenges. And I think this is certainly one of them. And then, yes, we need at the federal level, APR disclosure as well. We need 1071, we need the data. And as Louis referenced, there’s, there’s not just, you know, there’s a there’s a large number of companies today coming in for bank charters. There’s been a wave of stable coin issuers coming in for a trust charter. There’s been sort of a surge of companies applying for an industrial loan Charter, which is sort of a limited purpose charter that gives them a lot of the benefits of the federal banking system without most of the obligations, protections, regulations, including sort of inadequate CRA obligations. So these are all things that you know we need to be active on, need to be vigilant on, NCRC has opposed almost every one of, certainly the stable coin charters and a number of the ILC charters. But for that very reason, we need strong federal standards laws. And, you know, we have an agency that was charged with, you know, protecting against those kinds of abuses, and that’s the CFPB, and we need a strong CFPB.

Louis Caditz-Peck  56:29

Okay, well, thanks everybody. I can’t believe how, how rich the all three of these conversations were, and I hope that there’s a lot of time for us to continue the conversation, one on one for the rest of the rest of the day for folks on the live stream, thank you, and let’s hear from you.

56:49

I didn’t realize you’re recording over there. Yeah, Jacob, come on up for some closing remarks.

Jacob Harr  57:08

Well, thank you. It’s been, it’s been a really, Louis, I couldn’t agree more. It’s been three fantastic conversations. And I’m Jacob Harr, I’m from Community Investment Management. We’ve been a rblc member going back to 2015 and one of the reasons that we we’ve all come together to work on this issue is because of how high stakes it is, right? And seeing these small business owners, and especially Karida and Rebecca up here today. Thank you for coming and sharing your stories. I think for all of us who work in small business, it’s so meaningful to hear your experiences. And you know it reminds us, Louis, like you shared your family’s small business story, Peter, you shared your small business story. Got me thinking about, you know, my father, my grandfather, my great grandfather, all small business owners, and I bet all of us here have that someone in our lives who’s been working hard to build that economic pathway for all of us. You know, as we just think about the conversation and try to summarize some of the points, you know, I think that what I heard and bringing it together is just look, access to capital has really improved over the last 10 years. That is clear, but outcomes for small businesses are still precarious. Right? The right kind of financing can be a lifesaver, but the wrong kind of practices can be a death sentence for small businesses. And carita, you really talked about a lot of those struggles, you know, and how much we need these tools to understand the options. With transparency and choice being fundamental for, you know, small business owners, the goals really do vary. Karina, you talked about small business owners being optimists. That that true, that that strikes true. And, you know, I think, Tim, you talked about how growth is generally something that small business owners are citing as a main motivator, whereas business ownership is not generally a pathway to generational wealth. You know, we heard about it as a lifestyle business, as a creative fulfillment area, or a reasonable career alternative for employment and and so much of the reality is, as you said, Karina, just keep it going like that is what you were doing day in and day out, and what is guiding a lot of that. But there are such significant gaps in data on small business with this 30 plus year old data collection infrastructure, and thinking about how we’re going to catch up our understanding of what business owners are experiencing and how we can measure outcomes, we’ve talked about 1071, and. Some of some of the efforts of trying to pull data together so that we can really understand that.

Jacob Harr  1:00:05

But you know, one of the things that I was inspired by was the panel that you moderated Peter talking about all the innovation and the role of AI and how, especially for the smallest and most vulnerable businesses, those types of tools are being adopted quickly and are so meaningful to help people understand their financials, some of the great work that high beam and parlay are doing, but also thinking about how these tools are enabling business creation. Joyce, the panel that you moderated, we talked about that right? Like businesses are forming at a much faster rate. A lot of that is help. Is helped by technology. I think at the end, the one thing to that sums up the day for me is that innovation is a mess, but yet here we are, and we keep going, and it’s what we need to do, and on the way that we believe innovation can be shaped to create the future we all want and we all want to live in, and we need such a diverse group of stakeholders, like those who are here in the room, those who are on the stage, and those who are out there.

Jacob Harr  1:01:16

And so one of the amazing things about the Responsible Business Lending Coalition is it brought together folks like Small Business Majority, representing all of these small business owners for profit, lenders, impact investors like us, nonprofits, conveners like Aspen Institute, CDFIs and so many different types of groups that all work across the sector to focus on practice, right? All of these products are needed. There’s not a single product or a single company that is necessarily toxic. It’s how they show up in people’s lives and the way that they’re giving that type of access. And you know, the same types of tools and products that Karida you spoke about, put you in a really tough situation, Rebecca also talked about, is being a lifesaver because of the way that it helped build resilience. And so it is complex and it is messy, and so I hope that all of us can come together partner to ensure that we are seeing, in fact, guardrails so that these products and these innovations can become productive, and the value that is being generated in our world is being done from the economic success of small businesses and the communities they serve. And that’s really the foundation of where this whole chain of finance can work really well when there’s value creation that’s coming at the small business level, at the community level, and we all get to participate and encourage that through the innovation that’s being created. So thank you so much for being here. It was a great day.

Joyce Klein  1:02:53

Well, with that, I just want to add my thanks to Jacob, to all of you for being here. Want to do some quick thanks to the all of the rblc members and those who have contributed to today’s event. Jacob, as the sponsor, Small Business Majority was a key member of our planning committee. So that was that was fantastic, Peter, for your moderation today and your help with the session, as well as our fantastic EOP and Aspen Institute team, who really support us great and are and are fantastic on these events. So So thanks to everyone. It’s now time for a reception, so back where we had snacks before, please join us and hang around and continue the conversation and thank you.

Blogs, Articles, Tools, and Publications

• Ragsdale, Maya, and Katherine Passley. “The Temp Trap: A Blueprint for Organizing Workers with Records in the Temp Industry.” Beyond the Bars. November 18, 2025. 
• Schueler, McKenna. “Worker Advocates Manage To Kill Florida Bill That Would Have Eliminated Labor Protections For Temp Workers.” Orlando Weekly. May 6, 2025. 
• Texas Climate Jobs Project, Climate Jobs Institute at Cornell University IRL School, Organized Power in Numbers.“Power and People: Working Conditions in the Texas Clean Energy Transition.”Cornell University IRL School. August 2024.
• Wilkins, Ben. “Organizing the South: We Look Back to Move Ahead.” Convergence. April 30, 2024. 
• Wilkins, Ben. “The Long Road to Recognition: Southern Service Workers Find Their Power.” Sage Journals. December 27, 2023. 

Websites 

• Beyond the Bars
• Civic Works
• Texas Climate Jobs Project
• Union of Southern Service Workers

Additional Resources

Views on Workplace Quality – What Makes a Job “GOOD?”

Job Quality Fellows, Class of 2025-26 — Aspen Institute

Power and People: Working Conditions in the Texas Clean Energy Transition (one-pager)