JPMorgan is trying to expand minority lending for small businesses

HOUSTON-JPMorgan JPM -0.44%

Chase & Co. is launching a national program to try to get more credit into the hands of minority small business owners and close a persistent racial gap in funding.

The nation’s largest bank this year quietly piloted a special lending program here and in Dallas, Detroit and Miami that allows it to offer more loans to business owners who might otherwise have been turned down.

JPMorgan does not change its lending rules based on race. Instead, it targets minority-majority neighborhoods across the country with loans and business mentoring. All customers who apply in these areas will benefit from the changes.

Other banks have worked on similar projects and pilots, but JPMorgan’s is the first with a national reach. The bank says lending and a credit card program beginning next year will help the bank open 100,000 new accounts over five years.

Chief Executive Jamie Dimon said the bank focused on small business lending based on community feedback as it considered its broader commitment to spend $30 billion on racial justice.

“One of the biggest things we heard was, ‘Go help our minority small businesses,'” he said.

In 2021, black-owned small businesses were more likely than white-owned businesses to apply for funding, but were about half as likely to receive all funding requested, according to a Federal Reserve survey. Even minority applicants with good credit were less likely to receive funding.

The JPMorgan Chase Institute, the bank’s in-house think tank, found that 90% of businesses in majority-Black, Hispanic, and Hispanic communities had less than two weeks’ cash on hand, compared with a third of businesses in white areas.

In 2019, dr. Tennille Johnson, a pharmacist and self-confessed fashionista, is fed up with her scrubs. She and two partners decided to start a side business, Scrubs to the Rescue, selling higher quality and better fitting uniforms. As a longtime Chase customer, Dr. Johnson to get a loan but was denied. She was told she hadn’t been in the business long enough and hadn’t made enough profit.

This tote bag is one of the items featured in Dr. Tennille Johnson’s Scrubs to the Rescue store in Houston is up for sale.

“What do I have to do to qualify next time?” she wondered.

This year Dr. Johnson more comprehensively. She started working with a Chase mentor, quit her job, and bought out her partners. She was able to get a Chase credit card and $100,000 in loans to expand the offering and hire more employees, including her daughter, Imani Wilson. dr Johnson wants to enter into contracts with local doctors’ offices to generate larger sales. She’s on track to double her sales to $300,000 this year and expects to do the same next year.

She’s now working with Chase on a line of credit that will help pay for inventory, technology, and more staff. The 45-year-old says she needs to fund her growth with ideas like scrub subscriptions. “We want to be innovative,” she says.

Banks try to find a balance by creating earmarked lending programs. They don’t want to make loans that are bad for the bank or the customer. They have sought to change the credit criteria, including credit scores, cash flows and business history, that make minority applicants more likely to be turned down.

Imani Wilson, left, works with her mother as a digital marketing specialist at Scrubs to the Rescue.

The Office of the Comptroller of the Currency has urged banks to try and resolve the issue. As part of this program, Citigroup inc

This summer, a pilot program for lending to minority small businesses in Los Angeles began by changing the rules of creditworthiness and a company’s operating requirements.

This summer, Chase overhauled its small business lending processes to include more information about an entrepreneur, including cash flows in and out of their deposit accounts and data from third-party providers and fintechs about their businesses. In the few minority towns, Chase took the new data and streamlined eligibility criteria, including including lower credit scores.

Chase found that lending to minority borrowers was increasing, said Ben Walter, head of commercial banking.

“It seems to be doing exactly what it’s supposed to be doing, which is closing the gap,” he said.

JPMorgan Chase is conducting a pilot program to offer more credit to business owners who might otherwise have been turned down.


David Paul Morris / Bloomberg News

Sherice and Steve Garner, Chase customers who started selling barbecue in Houston in 2010, didn’t think the banks would help them. They used their personal bank account and bought equipment with cash after another bank denied them a loan for a food truck.

One day, Ms. Garner was trying to get a cashier at Chase’s to come and buy some crickets when the cashier told her to meet with the commercial bankers.

When Chase loaned them $110,000 to complete a renovation, they were surprised. This March, they achieved one of their key goals and bought their site with a $1 million loan from Chase. They’ve gone from $400,000 in annual sales to $2 million, Ms. Garner said.

“They supported us,” Ms. Garner said. “We did it the hard way and we didn’t even know it.”

Write to David Benoit at [email protected]

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