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The State of Small Business Lending: Innovation and Technology and the Implications for Regulation
By Karen G. Mills and Brayden McCarthy
November 2016

Abstract:  Small businesses were among the hardest hit in the Great Recession, accounting for more than 60 percent of the total jobs lost. The economic crisis was focused on the banking sector, which is one reason for the disproportionately high impact on America’s small businesses, which tend to be heavily credit dependent. While some aspects of the economy have recovered in the years since, small businesses have struggled, primarily due to a lingering credit gap that is the result of banks being less likely to make the small dollar loans — those less than $250,000 — that small firms seek (more than 70 percent). A rapidly-growing financial technology (fintech) sector has quickly stepped in to fill this gap, and incumbent banks are exploring a variety of partnership strategies with these new entrants. Yet, while the much-needed increase in sources of financing has been welcome by small businesses, the innovative fintech lenders have sparked concerns around transparency and the high costs charged to borrowers. These concerns are exacerbated by a “spaghetti soup” of regulators, where no one federal entity has oversight, and protections around small business borrowing slip through the cracks. This paper takes a detailed look at the current state of small business lending, the causes for the persistent low-dollar loan gap, the solutions being driven by innovative fintech lenders, and the key concerns around oversight and regulation. Finally, it provides regulatory recommendations aimed at protecting small business borrowers, while not dampening the innovation that has proven so promising in filling the gap in small business access to credit. (Read Complete Paper)

 

A New Categorization of the U.S. Economy: The Role of Supply Chain Industries in Performance
By Mercedes Delgado and Karen G. Mills
May 2016

Summary: Supply chains have been an important part of the discussion of the American economy. However, this discussion has lacked an empirical definition of who are the suppliers and this has limited our understanding of their role in national performance. This paper introduces a new industry categorization that separates Supply Chain industries (i.e., those that sell their goods and services primarily to other businesses or governments) from Business-to-Consumer (B2C) industries (i.e., those that sell primarily to consumers). Overall, our findings call for targeted policies that recognize that suppliers are a large segment of the U.S. economy, are a mix of manufacturers and service providers, have a diverse and distinct set of labor occupations, drive innovation, and are vulnerable to crises. (Read Complete Paper)

 

Growth and Shared Prosperity
By Karen G. Mills, with contributions from Joseph B. Fuller and Jan W. Rivkin
Harvard Business School
Sept. 21, 2015

Summary: In June 2015, nearly 75 experienced leaders from across business, government, labor, academia, and media gathered at Harvard Business School to discuss a topic of increasing concern in America: How can our nation continue to remain competitive while also providing a path to prosperity for more citizens? This report highlights the group’s deliberations and summarizes the HBS research that was presented during the convening. (Read the Full Report)

 

The Challenge of Shared Prosperity
By Jan W. Rivkin, Karen G. Mills, and Michael E. Porter, with contributions from Michael I. Norton and Mitchell B. Weiss
Harvard Business School
Sept. 9, 2015

Summary: In the 2015 survey on U.S. competitiveness, HBS alumni weigh in on the current state and future trajectory of U.S. competitiveness as well as the structural strengths and weaknesses of the U.S. business environment. In addition, alumni delve deeper into two aspects of competitiveness: the health of entrepreneurship in the U.S. and business leaders’ views on shared prosperity. Alumni are optimistic about the ability of U.S. firms to compete globally and they see entrepreneurship as more accessible today than it was a decade ago. But they doubt that firms in the U.S. will be able to lift the living standards of the average American. Alumni report that rising inequality, middle-class stagnation, economic immobility, and limited economic mobility are problems for their businesses, not just social issues. Business leaders would like to see the future gains in prosperity spread far more evenly among Americans than recent gains have been distributed. (Read the Full Report)

 

Can Startups Save the American Dream?
Milstein Commission on Entrepreneurship and the Middle Class
University of Virginia’s Miller Center, in Partnership with the Batten Institute at the Darden School of Business
Jan. 14, 2015

Summary: Entrepreneurship is a widely dispersed, crucial element of the U.S. economy. Yet, the “startup slowdown” experienced over the last decade has critical implications to prospects of America’s middle class. Mills and her Milstein Commission colleagues offer five actionable ideas to restart America’s entrepreneurial engine, and forge new pathways to create and sustain middle class jobs. These include: unlock capital for Main Street entrepreneurs, accelerate impact investing through program-related investments (PRIs), build a regulatory roadmap, empower the next generation of entrepreneurial leaders, and equip civic leaders to build entrepreneurial ecosystems. (View the Executive Summary; Read the Full Report)

 

The State of Small Business Lending: Credit Access During the Recovery and How Technology May Change the Game
Karen G. Mills and Brayden McCarthy
Harvard Business School Working Paper, No. 15-004
July 22, 2014

Abstract: Small businesses are core to America’s economic competitiveness. Not only do they employ half of the nation’s private sector workforce – about 120 million people – but since 1995 they have created approximately two-thirds of the net new jobs in our country. Yet in recent years, small businesses have been slow to recover from a recession and credit crisis that hit them especially hard. This lag has prompted the question, “Is there a credit gap in small business lending?” This paper compiles and analyzes the current state of access to bank capital for small business from the best available sources. We explore both the cyclical impact of the recession on small business and access to credit, and several structural issues in that impede the full recovery of bank credit markets for smaller loans. (Read Complete Paper; View accompanying Small Business Lending Chart Deck)

 

Clusters and Competitiveness: A New Federal Role for Stimulating Regional Economies
Karen G. Mills, Andrew Reamer and Elisabeth B. Reynolds
Brookings: Metropolitan Policy Program
April 2008

Summary: Regional industry clusters—geographic concentrations of interconnected firms and supporting organizations—represent a potent source of productivity at a moment of national vulnerability to global economic competition. For that reason, the federal government should establish an industry clusters program that stimulates the collaborative interactions of firms and supporting organizations in regional economies to produce more commercial innovation and higher wage employment.