Karen G Mills - Fintech, Small Business & the American Dream

Cover illustration: Oksana Chaban / iStock / Getty Images Plus

Cover design by Fatima Jamadar; Rebecca Uberti

This Palgrave Macmillan imprint is published by the registered company Springer Nature Switzerland AG

The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

It was a cold day in Arkadelphia and we were shivering out in the muddy grounds of the sawmill. As part of my new role in Washington , I had gotten up at 4 AM, taken two planes to land in Little Rock, and driven two hours south to visit Richie and his wife Angela at their business, Shields Wood Products. I was not in a good mood. Then Angela, who was also the businesss bookkeeper, turned to me and said the words that changed my whole perspective on the day and probably led to the writing of this book. You know, she said, you saved our business.

I heard these words dozens of times over the next year as we worked to get capital flowing to small businesses who were suffering because credit markets had frozen during the Great Recession of 2008. Banks that had become overextended stopped lending , making loans guaranteed by the U.S. Small Business Administration (SBA) a lifeline for many. As the head of the SBA , I was the member of President Obamas Cabinet who was responsible for all of Americas entrepreneurs and small business owners. It was a terrific job. But it sometimes required pounding the table to ensure the voice of small business did not get lost under the mass of other priorities.

I knew how important small business was to the economy . My Grandpa Jack had come to America from Russia at the turn of the last century with nothing. Starting with two machines in the back of a shoe shop in Boston, he built a textile business that not only provided for his family and extended family, but grew to employ hundreds of people. When I worked for him in the mill during my college years, he would tell me not to go to work for a big company. Our family, he would say, doesnt work for other businesses. We build our own.

Grandpa Jacks story was the story of the American Dream. Our country is one of the few places in the world where it is possible to lift oneself and ones family to a new set of opportunities and a new life by starting and growing a small business. This path to opportunity, however, is threatened. Access to capital for small businesses has been under pressure, not only during the recession, but for decades prior, due to consolidations in community banks and the difficulty banks have in making profits with small loans , particularly those given to the smallest businesses.

Beginning around 2010, however, fintech entrepreneurs have come on the scene. Using data and technology, they have brought a new experience to small business borrowers, massively improving a process that has essentially not changed since the time when Grandpa Jack sought a loan . Through their early success and some subsequent stumbles, these innovators are transforming the small business lending market. Large global banks and small community banks have woken up to the fact that small businesses are looking for a more responsive, more innovative set of products and services focused on their unique needs. Platforms like Amazon , Square , and PayPal are demonstrating the power of data to overcome the information opacity that has long made small businesses difficult to understand.