Lending to Diverse Segments

Wells Fargo sponsors Gallup industry study to gain insight into financial needs of diverse-owned small businesses

Wells Fargo announces plan to help address study findings and help more diverse small businesses get credit-ready.

Published: May 20, 2015

SAN FRANCISCO, May 21, 2015 – To gain more insight into the experiences of diverse business owners in the areas of lending and operating their businesses, Wells Fargo commissioned Gallup to conduct a national study of small business owners. Today, as Gallup releases the findings (on Gallup.com), Wells Fargo is announcing a four-point plan to address needs identified in the study. The plan will help more diverse small businesses become credit-ready and gain access to credit. The Gallup survey included findings of business owners in six segments – African American, Asian American, Hispanic, LGBT (Lesbian, Gay, Bisexual and Transgender), military veteran, and women.

"Serving diverse communities has long been a focus area and priority for Wells Fargo, yet we know there's more work to be done, and it starts with gaining a deeper understanding of the experiences of diverse small business owners working with financial institutions," said Lisa Stevens, head of Small Business for Wells Fargo. "For this reason, we commissioned the Gallup study, which gave us new insight into the perceptions and experiences of diverse business owners working with banks, and how we can improve as a company and as an industry."

Overall, the national study revealed there are more similarities than differences between small business owners in all diverse segments and those in the general population. It also shows specific areas in which the financial services industry can provide more support for diverse business owners.

Credit Coaching Program

In the Gallup survey, diverse-owned small businesses were more likely to respond that they have been declined for business credit — about one in five African American, Asian, and Hispanic business owners said they faced a credit decline in the past (14% of general market respondents said they faced a decline). After being declined, a higher percentage of African American business owners (64%) said they did not apply for credit again than their peers in the general small business population (47%). African American (14%) and LGBT (15%) business owners also reported greater personal credit challenges than the general market (5%).

To help business owners learn how to obtain credit, as well as better understand the reasons for a decline and learn how to prepare to reapply, Wells Fargo has launched an enhanced Credit Coaching program. It offers expanded support to business owners who have been declined business credit. The phone-based program has been rolled out to small business owners who apply for Wells Fargo Small Business Lending credit products (primarily credit products under $100,000 sold through its retail banking stores). Business owners who use the program will be connected with a credit specialist who will review the business' credit profile, explain why the business was declined credit, and share resources that can help the business strengthen its credit profile and improve the likelihood of being approved for business credit in the future.

In addition, while the majority of business owners surveyed across all segments said they did not feel a perception of discrimination from a financial institution impacted their chances of obtaining business credit, 22% of African American and 11% of LGBT business owners reported that perceived discrimination impacted their chances of obtaining credit for their business, compared to 5% of the general small business owner population. The Credit Coaching initiative will be one way Wells Fargo will further increase transparency of credit decisions and facilitate conversations that build trust with all customers.

"We take pride in the fact that diversity and inclusion has long been one of our core values in every aspect of our business, and at every level of our organization," said Stevens. "We want to make sure all customers feel welcome, respected, understood, valued, and appreciated. The actions we're introducing today are the next steps for Wells Fargo to better serve and connect with diverse-segment business owners."

Community Development Financial Institutions Investments, Grants

Another key finding in the Gallup study is that African American, Asian, and Hispanic small business owners are more likely to be in the startup and growing stages of their business, compared to the small business population in general, and as a result may not qualify for many conventional bank loan products. In addition, 49% of African American-, 47% of women- and 45% of LGBT-owned businesses in the survey reported annual business revenue of less than $50,000, compared to 36% of small business owners in general.

To help newer, smaller and startup businesses access the appropriate business financing and support they need, Wells Fargo will extend $50 million in investments and $25 million in grants to organizations called Community Development Financial Institutions (CDFIs) that serve small businesses and entrepreneurs. The investments and grants will be directed to CDFIs that help small businesses get started and established by providing flexible capital and technical assistance. Wells Fargo will work with existing and new CDFI customers in diverse communities across the country to deploy this capital and measure its impact.

"We know that in order to address the range of financial needs within all of our communities, we need to support and work with the ecosystem of organizations that serve small businesses," said Jon Campbell, executive vice president, government and community relations for Wells Fargo. "Through this increased investment and connections with community lending organizations, we are making meaningful strides toward increasing access to capital for small businesses, as well as helping more business owners get the coaching and educational resources they need to succeed financially long-term."

Nationwide Referral Network

In the Gallup study, more African American, Asian, and Hispanic business owners reported they were unable to obtain all the credit they needed in the past year than the general business owner population, yet the majority of small business owners in all diverse segments said they did not need credit in the last year. At the same time, nearly one in four African American, Hispanic, and Asian business owners plans to apply for credit in the next 12 months, higher than the general small business owner population planning to pursue credit (15%). Businesses in the startup and growing phases in general expressed more intentions to apply for new credit.

To ensure business owners are aware of and accessing the full range of financing options available to them, Wells Fargo recently established referral relationships with more than 20 nonprofits and other lenders in cities across the country that are participating in the U.S. Small Business Administration’s (SBA) Community Advantage program. Participants in the SBA's program specialize in providing hands-on guidance to small businesses and offering credit to qualifying businesses in underserved markets. Wells Fargo, the nation's No. 1 SBA lender 7(a) in dollar volume for six consecutive years (U.S. SBA data, federal fiscal years 2009-2014), established these relationships with the intent of providing small business owners with an additional financing solution that may better meet their lending needs.

Chamber Training Institute

On the topic of business education, the Gallup study showed that African American, Asian, and Hispanic business owners were more likely than business owners in the general population to be extremely or very interested in learning how to build a strong business credit application, choose a credit product, and develop a business plan. To meet this demand, Wells Fargo is supporting a Chamber Training Institute that trains leaders of diverse-segment chambers of commerce on key business and leadership topics for their members, such as how to access business credit and craft strong business plans. This cross-chamber initiative builds on Wells Fargo's strong working relationships with chambers nationwide that specifically serve and represent African American, Hispanic, Asian American, and LGBT business owner interests.

"There's no single answer to the challenges reflected in the study, just as the challenges facing all diverse-owned businesses are broader than any one financial institution can address," Stevens said. "As America's leading small business lender, we have a responsibility to do more. We believe the steps we're taking will make a difference, help us foster more lifelong relationships, and move us closer to our goal of helping every business we serve succeed financially. We want to contribute to a national conversation, involving the public and private sector, industry stakeholders, and small business owners, about how to better support small businesses in every community."

Additional Gallup study findings

Other key findings in Gallup's industry study included:

  • Only about half of small business owners say they have ever borrowed money for their business, including the general population of small business owners (50%), Asian (53%) and Hispanic (51%) segments, while the percentage of African American business owners who have used credit (42%) is somewhat lower.

  • African American (21%) and Hispanic (18%) business owners were more likely than their counterparts in the general population (10%) to be in the startup phase.

  • Nearly half of Asian-owned business owners (49%) said they were in the growing phase of their business, a higher percentage than the general population of small business owners (37%). Also, 38% of Asian-owned businesses reported annual revenue of $250,000 or more, compared to 22% of businesses overall.

  • A higher proportion of veteran-owned businesses (24%) reported being in the winding down phase — preparing to retire, sell, or transition their businesses — than small business owners in general (15%).

  • Just 9% of women business owners reported plans to apply for new credit in the next 12 months, compared with 20% of men surveyed.

About Gallup and the "Small Business Diverse Segments Lending Study"

As part of its Wells Fargo Works for Small BusinessSM initiative, Wells Fargo — in collaboration with diverse chambers of commerce — commissioned Gallup to conduct a survey of diverse-segment small business owners. The research was designed to obtain insight into the experiences of Asian, African American, and Hispanic small business owners on the topic of credit and gain a deeper understanding of their perceptions of working with financial institutions, and their overall experiences as small business owners. Additional surveying was conducted with women, military veteran, and lesbian, gay, bisexual, and transgender business owners. The focus of the study is on the industry overall, and not on a single bank or financial institution.

About Wells Fargo

Wells Fargo & Company (NYSE: WFC) is a nationwide, diversified, community-based financial services company with $1.7 trillion in assets. Founded in 1852 and headquartered in San Francisco, Wells Fargo provides banking, insurance, investments, mortgage, and consumer and commercial finance through more than 8,700 locations, 12,500 ATMs, and the internet (wellsfargo.com) and mobile banking, and has offices in 36 countries to support customers who conduct business in the global economy. With approximately 266,000 team members, Wells Fargo serves one in three households in the United States. Wells Fargo & Company was ranked No. 29 on Fortune's 2014 rankings of America's largest corporations. Wells Fargo's vision is to satisfy all our customers' financial needs and help them succeed financially. Wells Fargo perspectives are also available at Wells Fargo Blogs and Wells Fargo Stories.

Wells Fargo serves approximately 3 million small business owners across the United States and loans more money to America's small businesses than any other bank (2002-2013 CRA government data). In 2014, Wells Fargo provided $18 billion in new loans to small businesses throughout the U.S. To help more small businesses achieve financial success, in 2014 Wells Fargo introduced Wells Fargo Works for Small BusinessSM — a broad initiative to deliver resources, guidance, and services for business owners. For more information about Wells Fargo Works for Small Business, visit: WellsFargoWorks.com and follow us on Twitter @WellsFargoWorks.

The Gallup diverse lending study and related articles and videos are also available on the site.

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