American Express puts $40 million into a fund to provide loans to small business owners of color

American Express puts $40 million into a fund to provide loans to small business owners of color

Vice President Kamala Harris (C), Reign Free, Owner of Red Door Catering, Senator Alex Padilla (D-CA) and California Lt. Governor Eleni Kounalakis (D-CA) listen to Luz Urrutia, CEO of Accion Opportunity Fund (front left) and Allison Kelly, Executive Director 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

Helping small businesses owned by people of color, immigrants and women recover from the Covid pandemic is the goal of a $40 million investment American Express is making with Accion Opportunity Fund.

The loans, which started going out this week, range from $5,000 to $100,000, depending on business need. The average is expected to be around $28,000 according to forecasts from the nonprofit fund, which aims to help build a financially inclusive world.

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

To qualify for the loans with 12 to 60 month terms, an applicant must be in business for 12 months, have proof of $50,000 in revenue per year and own at least 20% of the business. Applicants with low FICO credit scores will be considered, but their credit rating will be a factor in determining the loan’s 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 an average interest rate of 94%, according to Accion research.

“We specialize, particularly in businesses that don’t have the traditional documentation that don’t fit nicely into traditional credit boxes of much larger lenders like American Express,” said Urrutia, who spent her career in lending, including 18 years at Wachovia Bank before it was acquired by Wells Fargo.

“FICO for us is a data point, but if a customer doesn’t have a FICO score. It’s OK. We will still loan if they meet other criteria. That takes specialized lending. A lot of the traditional mainstream lenders really don’t have the capacity,” she said.

Black-owned businesses will be a focus on the Accion loan program.

Last fall, American Express announced a $1 billion plan, which included a pledge to provide capital and financial education to 250,000 Black small businesses and provide $25,000 grants to Black female entrepreneurs in partnership with nonprofit IFundWomen.

“When we look at the outsized impact of the pandemic, combined with systemic racism, we know that Black- owned businesses have been at a historic disadvantage,” American Express executive Jessica Ling told CNBC. “This has refueled a commitment from American Express to help support the Black business community by offering access to funding, giving resources … to help them grow.”

Accion predicts the $40 million investment through the cycles of loaning money, repayment and lending again will turn into $125 million in loans over the next five years and allow small business owners to create or retain 10,000 jobs.

“Our ethos is really to provide a hand up, not a handout,” said Urrutia. “The sustainability and the value of our model really relies on making loans to businesses that they pay back, and we take those funds and we lend them to other businesses. It’s a virtuous circle.”

Philanthropist Mackenzie Scott, ex-wife of Amazon founder Jeff Bezos, gave Accion a $15 million grantin August.