Wells Pledges $1 Billion for Latino Lending
In what analysts are calling the first loan program of its kind, Wells Fargo Bank said Thursday that it is pledging $1 billion to help Latinos nationwide expand their businesses.
The six-year program, which will be heavily marketed in Los Angeles and Orange counties, is being launched to reverse the perception among many Latino entrepreneurs that banks won’t lend to them.
Because Latinos are one of the fastest-growing segments of the small-business community, Wells Fargo’s move is viewed as a prudent one that other major banks are likely to follow.
“They didn’t do this because they think it’s going to fail. They believe it’s going to be successful,” said Bob Gnaizda, general counsel at the Greenlining Institute, a nonprofit community rights group in San Francisco. He said the rights group applauds the move.
“We believe it’s going to make an enormous difference because it’s just the tip of the iceberg,” Gnaizda said. “What Wells Fargo has done is open up the marketplace. They’re the first, but we believe others will be rushing in.”
Wells Fargo made its announcement at the U.S. Hispanic Chamber of Commerce’s annual convention in Houston, where the Small Business Administration said it plans to triple its loans to Latino business owners over the next three years. The agency said it will pledge $2.5 billion in loan guarantees to Latino entrepreneurs by 2000.
“In the months ahead, I will announce similar aggressive goals and affirmative action outreach campaigns to reach other underserved groups,” SBA Administrator Aida Alvarez said at the convention.
The Wells Fargo program was created in alliance with the Hispanic Chamber, the country’s largest Latino business organization.
Earlier this year, Wells commissioned a study that showed Latinos are far less likely than other ethnic groups to obtain adequate business capital. The survey, which queried 688 business owners in 11 major metropolitan areas, found that only 46% of Latino business owners, compared with 63% of other groups, believe they have enough capital to expand their businesses.
“We found that a third of Latino small-business owners don’t even apply for loans because they think they won’t get them,” said Jose E. Nine, vice president of Wells Fargo’s Business Banking Group. “This is a way to let them know Wells Fargo has the money and is interested in lending to them.”
Wells Fargo also is aware of statistics that suggest Latino lending could be very lucrative. Nationwide, the number of Latino-owned businesses soared 76% between 1987 and 1992, far outpacing business growth in general, according to the Census Bureau.
Southern California in particular is a hot spot for Latino entrepreneurs. In 1992, there were 109,104 Latino firms in Los Angeles County, accounting for 16% of all businesses. In Orange County, there were 19,270, or about 9% of all businesses, according to the census data.
“We do see this as a great business opportunity for the bank,” Nine said. “This particular market is growing much faster than the regular small-business market, and it just makes sense to reach out to them.”
Wells Fargo plans to initiate a direct-marketing campaign to Latino business owners next year. The Hispanic Chamber will also help spread the word.
Wells Fargo’s pledge comes a week after Bank of America announced a $140-billion commitment to mostly lower-income and minority borrowers over 10 years, much of that to small-business owners. Many banks have come to realize that small-business lending can be highly profitable because it generates higher fees and additional banking business from borrowers.
Nine said the Latino loan program could easily be expanded, just as Wells’ program targeting female business owners grew from a $1-billion-a-year pledge when it began in 1995 to $10 billion today.
To qualify for an unsecured loan of $5,000 to $100,000 through the Latino program, business owners must have been in business at least three years, have not declared bankruptcy within the last 10 years, have satisfactory personal and business credit records, have a profitable business and have an established business bank account.
“We went out to the community and asked Latino business owners what they need, and they said they need collateral, unsecured loans, fast responses, Spanish-speaking loan officers and simple loan applications,” Nine said. “So that’s what we’re giving them.”
Some Latino business leaders, however, wonder whether the new program is a true commitment or simply a marketing ploy, since the criteria for obtaining a loan are the same for other small businesses.
“If I meet all their criteria, I can go to any bank and qualify for a loan,” said Frank Moran, president of the Los Angeles-based Latin Business Assn. “The current underwriting laws need to take into account cultural diversity; otherwise, this loan program will have very little impact on increasing Latino business participation in mainstream banking.”
But Moran acknowledged that Wells Fargo’s pledge is likely to spur competition from other banks, which could be positive.
“The good news is that the competition for Latino-owned businesses has begun, and as long as there’s competition, we will be the benefactor,” he said.
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