American Express Invests $ 40 Million in Colored Small Business Loans

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Vice President Kamala Harris (C), Reign Free, Red Door Catering Owner, Senator Alex Padilla (D-CA) and California Lieutenant Governor Eleni Kounalakis (D-CA) listen to Luz Urrutia, CEO of Accion Opportunity Fund (front left) ) and Allison Kelly, CEO of Inner City Advisors (front right), during a visit to Red Door Catering, a CDFI business, on April 5, 2021 in Oakland, California.

Patrick T. Fallon | AFP | Getty Images

The $ 40 million investment goal is to help small businesses of colored people, immigrants and women recover from the Covid pandemic. American Express does with Accion Opportunity Fund.

Loans, which started disbursing this week, range from $ 5,000 to $ 100,000, depending on the needs of the business. The nonprofit foundation, which aims to help build a financially inclusive world, predicts an average of about $ 28,000.

“Our intention is to look at underfunded small businesses that really want to get stronger, reopen, stabilize and grow in 2021 and beyond,” Luz Urrutia, CEO of Accion Opportunity Fund, told CNBC. “[Businesses] we know they are trying to invest, buy inventory, maybe turn around, and they need reasonable terms and credit to get back on their feet. ”

To qualify for loans for a period of 12 to 60 months, the applicant must have been in business for 12 months, have proof of $ 50,000 in annual income, and own at least 20% of the business. Applicants with a low FICO credit rating will be considered, but their credit rating will be the determining factor in determining the loan interest rate, which can range from 5.99% to 25.99%.

Underfunded small business owners often use cash advances or other products from “alternative” lenders with average interest rate 94%, according to research by Accion.

“We specialize especially in businesses that do not have traditional paperwork that does not fit the traditional credit boxes of much larger lenders such as American Express,” said Urrutia, who has spent her entire lending career including 18 years at Wachovia Bank before it was purchased Wells Fargo

“FICO for us is a data point, but if the client does not have a FICO score. Nothing wrong. We will still lend if they meet other criteria. This requires specialized lending. Many traditional mainstream lenders don’t actually do this. there is potential, “she said.

Black-owned businesses will be the focus of Accion’s loan program.

Last fall, American Express announced a $ 1 billion plan that includes a commitment to capital and financial education for 250,000 black small businesses and $ 25,000 in grants to black women entrepreneurs in partnership with the nonprofit IFundWomen.

“When we look at the huge impact of the pandemic, coupled with systemic racism, we know that black-owned businesses are at a historic disadvantage,” American Express CEO Jessica Ling told CNBC. “It reinforced American Express’s commitment to supporting the black business community by providing access to funding, providing resources … to help them grow.”

Accion predicts that the $ 40 million investment through lending, repayment and re-lending cycles over the next five years will translate into $ 125 million in loans and enable small business owners to create or retain 10,000 jobs.

“Our spirit is to really help, not serve,” said Urrutia. “The sustainability and value of our model really depends on making loans to businesses that they repay, and we take those funds and lend them to other businesses. This is an auspicious circle. “

Philanthropist Mackenzie Scott, ex-wife of Amazon founder Jeff Bezos, gave Accion – $ 15 million grant in August.

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