The State of Small Business Lending: Credit Access During the Recovery and How Technology May Change the Game

Karen G. Mills; Brayden  McCarthy

Working Paper | HBS Working Paper Series | 2014

The State of Small Business Lending: Credit Access During the Recovery and How Technology May Change the Game

by Karen G. Mills and Brayden McCarthy

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 that impede the full recovery of bank credit markets for smaller loans.

Keywords: Small Business; Financing and Loans; United States;

Language: English

Format: Print

65 pages

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Citation:

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

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State of Small Business Lending Chart Deck

This chart deck accompanies Harvard Business School Working Paper # 15-004

In September 2017, the Internet giant Amazon announced that it aimed to open a second headquarters in some city other than Seattle, its current home base. By 2032, the company projected, this “HQ2” would be home to as many as 50,000 high-paying tech jobs and up to $5 billion of investment. The company invited North American cities to submit proposals to be the site of HQ2. The announcement set off a flurry of activity across the continent as civic leaders scrambled to prepare proposals by Amazon’s deadline. The case allows students to debate what companies should ask of cities and what cities should ask of companies.

This supplement discusses Amazon’s 2018 decision to split its HQ2 between two locations--Long Island City in New York and National Landing outside Washington, DC—as well as the ensuing response from local politicians and the public.

Case | HBS Case Collection | October 2017 (Revised April 2019)

Eastern Bank: Innovating Through Eastern Labs

Karen Mills, Dennis Campbell and Aaron Mukerjee

Eastern Bank is a 200-year-old New England mutual bank with a community focus. Eastern specializes in small business lending, having made strategic investments to become the top SBA lender in New England in the midst of the Great Recession, when other banks were pulling back. But with technology threatening to disrupt Eastern’s relationship banking model, CEO Bob Rivers is getting worried. Looking to spur innovation at the bank, he set up meetings at MIT to talk with “fintech” entrepreneurs. In a deliberate quest for innovation talent, Rivers finds his way to Dan O'Malley, co-founder of the payments division at Capital One and, most recently, CEO of a failed online bank. O'Malley agrees to join the bank as Chief Digital Officer, leading product development, customer support, and “Eastern Labs”—a new office enclosed by glass walls and located in the middle of Eastern's main lobby. Rivers provides Labs with $4 million annually—1% of gross revenues—to develop new banking technologies, and promises to help O’Malley spin out his own company if he develops product that can be monetized. O’Malley conducts tests in insurance cross-selling and small business lending, eventually launching a completely automated small business lending product. Rivers keeps the promise by helping O'Malley spin out a bank technology company called Numerated, and secures a 25% equity share for Eastern. But by the time of the spin out, Rivers is reassessing the success of the effort. Did Rivers have the right intrapreneurship model? Did he change the culture at Eastern? Did he make a mistake spinning off Numerated into a separate company? What lessons can he learn for “Labs 2.0”?

Keywords: Banks and Banking; Technological Innovation; Entrepreneurship; Management;

Citation:

Mills, Karen, Dennis Campbell, and Aaron Mukerjee. "Eastern Bank: Innovating Through Eastern Labs." Harvard Business School Case 318-068, October 2017. (Revised April 2019.) View Details

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The State of Small Business Lending: Credit Access During the Recovery and How Technology May Change the Game

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