By Brianna Wilson, Editor, ABF Journal
Nearly half of all companies with employees in the U.S. are owned by underrepresented groups, yet such businesses often lack access to capital. U.S. Bank provides an overview of its business diversity lending program, which was designed to address the wealth gap.
In 2020, the U.S. Census Bureau classified approximately 1.15 million (19.9%) employers as minority-owned, 320,864 (5.6%) as veteran-owned and around 1.24 million (21.4%) as women-owned.1 This data indicates that nearly half of all businesses with employees are owned by under-represented groups, but the owners of these businesses face an ongoing wealth gap and more limited access to capital.
To build upon its efforts to support underrepresented businesses and to help address the wealth gap, U.S. Bank introduced a new business diversity lending (BDL) program in 2023, which expanded the ability of business owners from historically under-represented groups to obtain capital. Through the BDL program, U.S. Bank helps businesses owned by women, people of color and veterans reach their goals with access to business funding, support and financial resources. The program is based on traditional loans and lines of credit at U.S. Bank, allowing for modified credit guidelines that enable more business owners to access necessary funding.
“Small businesses are the bedrock of the U.S. economy, and by broadening access to capital, we are helping to fuel more business owners’ dreams and drive economic growth,” Sekou Kaalund, head of branch and small business banking at U.S. Bank, says.
THE BUSINESS DIVERSITY LENDING PROGRAM
U.S. Bank had been exploring the possibility of developing a special purpose credit program to support diverse small businesses when, in September 2021, the bank announced plans to buy MUFG Union Bank’s core regional banking franchise from Mitsubishi UFJ Financial Group. The acquisition introduced the opportunity to build upon Union Bank’s existing business diversity lending program.
Through the BDL program, eligible businesses qualify for reduced credit score and decreased cash flow coverage requirements on most conventional lending products up to $2.5 million. Businesses are eligible if they are at least 51% owned and operated by one or more individuals who self-identify as a woman, person of color and/or veteran. The program is applicable to both secured and unsecured loans and lines of credit, including those secured by real estate.
Participating in the BDL program is voluntary and clients are required to opt-in. The opportunity to opt into the program is embedded within the application, which includes the program’s criteria and eligibility for all applicable products. BDL program participants are not required to submit a separate application, and they enjoy the same customer experience whether applying for conventional lending products or opting into the BDL program. The bank also makes all eligible business owners aware of the program.
BUILDING THE PROGRAM
Union Bank was an early adopter of special purpose credit programs and introduced its BDL program in the 1990s. The program was available within Union Bank’s footprint — primarily California, Oregon and Washington — to businesses majority-owned by people of color, women and veterans. Following the completion of the acquisition of Union Bank in December 2022, U.S. Bank saw the opportunity to expand the BDL program beyond Union Bank’s three-state footprint to all 26 states in which U.S. Bank has a retail presence and nationally through the bank’s digital lending application.
Although the acquisition of an existing program provided some groundwork to build upon, adapting the program to U.S. Bank required much of the same work needed to build a new program — from developing a written plan and discussing it with regulators to updating policies, process and systems.
The project touched a host of groups within and supporting the business segment at U.S. Bank, including product, risk, sales, credit, compliance, legal and the fair and responsible banking division. Union Bank teammates
were involved in the design and build of the U.S. Bank diversity lending program, giving U.S. Bank the opportunity to learn from Union about how the program might be structured, how to build awareness and engagement in
the program among front-line bankers and how to measure success.
SUPPORTING THE PROGRAM
Bankers with technical training on the program play a critical role in providing the BDL program with resources necessary to succeed. The bank’s growing team of business access advisors (BAA) provide additional support, offering small business owners information, connections and capital to position them for success.
The program is part of the bank’s focus on inclusive growth, driven through U.S. Bank Access Commitment, the bank’s long-term approach to help close the wealth gap for underserved communities, including communities of color. The commitment is comprised of multiple initiatives, including a mortgage program focused on homeownership education and the BAA program, which works with businesses owned by people from historically underrepresented backgrounds to address the three most prominent gaps that limit business growth and employment opportunities: information, connections and capital.
The program redefines how U.S. Bank serves employees, clients and communities. “We’ve made progress in helping people build wealth, but we still have a lot more work to do, and a lot more families, businesses and communities to empower,” Mary Miklethun, product lead for business deposits and lending for business banking at U.S. Bank, says.
MEASURING PERFORMANCE
For U.S. Bank, measuring the BDL program’s performance involves monitoring the extent to which it improves access to credit. The bank is tracking both the total loans granted to all eligible business owners who opted into the program and the subset of loans that specifically benefited from the modified underwriting criteria.
“Although this isn’t something we are able to track, we have heard feedback from Union Bank and other banks that having a program like this has the potential to bring more diverse customers to the bank; we think of it as laying out a ‘welcome mat’ for borrowers who might otherwise think they wouldn’t qualify for a traditional loan,” Miklethun says. U.S. Bank hopes that the program will encourage more diverse business owners to have a conversation with the bank about their capital needs so it can help them build and grow their companies, whether it’s through the BDL program or other solutions.
Overall, U.S. Bank reports strong engagement in the program so far, demonstrating both the community need and the interest on the part of bankers to serve diverse populations. The bank will continue to monitor the program’s impact in the months and years ahead and build on those learnings.
REACHING THE INDUSTRY WITH DIVERSITY LENDING
U.S. Bank’s BDL program is a special purpose credit program under the Equal Credit Opportunity Act (ECOA), which permits the creation of special purpose credit programs (SPCP). SPCPs are specifically designed to improve access to capital for members of economically disadvantaged classes. U.S. Bank has been part of industry efforts to encourage banks to create SPCPs, which has involved participating in the Office of the Comptroller of the Currency’s Project REACh (Roundtable for Economic Access and Change) and working with the American Bankers Association.
“Wealth inequalities are bad for all stakeholders. Continuing our longstanding commitment to address persistent racial wealth gaps and increase wealth-building opportunities for people of color is the right thing to do,” Miklethun says, noting that inclusive growth is central to U.S. Bank’s mission, purpose and values. “It is both who we are and how we differentiate ourselves.”
For U.S. Bank, a diverse workforce, as well as a diverse set of products and services for all socioeconomic groups, make up the foundation that allows for inclusive growth and support for under-represented businesses. U.S. Bank welcomes the industry to follow suit.•
1 U.S. Census Bureau, “Census Bureau Releases New Data on Minority-Owned, Veteran-Owned and Women-Owned Businesses,” Nov. 10, 2022.
Brianna Wilson is editor of ABF Journal.
