Businesses need access to capital to thrive, but 79% of small businesses have trouble accessing credit. Small loans aren’t particularly profitable, so for-profit financial institutions by their nature overlook the sub-$100K loans most small businesses need, creating an astounding $100 billion capital gap.
Luz Urrutia, CEO of Accion Opportunity Fund, decided to take on the challenge. She’s helping build the first financially self-sufficient and scalable small business non-profit lender in the country—scaling up “microfinance” in a way that’s incredibly challenging in the US.
AOF is a Community Development Financial Institution (CDFI) that provides affordable loans, business advising, and support networks for small business owners that have been left behind by the mainstream financial system. Since its inception, OAF has deployed over $1 billion in more than 32,000 small business loans, and provided more than five million businesses with coaching, online educational resources, networking, and grants. AOF’s loans have contributed to the creation or retention of over 66,000 jobs and generated $1.9 billion in economic activity through new wages, spending, and tax revenues.
Those numbers represent a massive impact, and demonstrate the billions in economic potential for investors across the US. “We’ve got a bold vision,” says Urrutia, “and it’s to prove that lending to underserved small businesses is good business.”
AOF’s mission is particularly important now, as fire-damaged small businesses in Los Angeles need small loans to rebuild, restock, and reopen. Urrutia took a few moments away from crafting AOF’s disaster response plans to answer a few questions.
What led you into your work with Accion Opportunity Fund?
As a Venezuelan immigrant, my first encounter within the US banking system was denial. I applied for a $500 credit card and was turned down by the bank where I was employed. To them, my status and lack of credit history meant that I was invisible and not bankable.
I knew that my personal experience was a part of broader systemic barriers that affected thousands of other immigrants. I asked myself, how can we build our credit scores, secure loans, and increase our family’s wealth and assets if we don’t get an opportunity from the institutions that should be giving us that opportunity? That denial gave me the resolve to advocate for underserved communities and be part of helping to solve a BIG problem which is the lack of affordable capital for underserved individuals.
I joined different local organizations and leveraged every opportunity to advocate for change. I shared research and advocated for more innovative and transparent lending policies and volunteered as a financial coach. As the years passed, I realized that while I was making a difference for the individuals and small businesses I worked with, I knew I could do more.
That’s when I launched a financial services organization focused on helping Latino consumers and small businesses with their financial needs and education. El Banco de Nuestra Comunidad, a for-profit, mission-driven full-service community bank in Atlanta, focused on serving consumers and small business owners that had little or no credit history and were being excluded from traditional lenders.
Finally, after nearly 30 years in the financial services sector, I faced the fact that in the for-profit sector, profits always lead. I felt that the best way to balance mission and profits is to start with the mission and allow the mission to drive the financial sustainability. This is why I decided to join Accion Opportunity Fund—to prove that one can build a financial services organization that can do good and be profitable.
Other than financing, what are other ways you support businesses?
We offer one-on-one business advising, educational programs, in-person and virtual events, small business grants, and online learning—services that are designed to meet small business owners where they are and empower them with the skills and support they need to continue growing their businesses and serving their communities. In the last fiscal year alone, AOF reached nearly 600,000 people with digital resources and directly served more than 10,000 small business owners.
For example, one of AOF’s key partnerships is with the Samuel Adams Brewing’s American Dream program, which provides food and beverage business owners across the country with access to capital, in-person events designed to expand their business knowledge and skills, one-on- one coaching with industry experts, and promotional opportunities.
CDFI’s are sometimes called “financial first responders” because of their ability to help during and soon after disasters. What are some of the ways that AOF has stepped in when other lenders can’t?
CDFIs have a longstanding history of working with communities left behind by traditional banking institutions. Sometimes the loan requests or the businesses are too small, the owner or the business doesn’t have sufficient credit history or traditional documentation, or they simply haven’t been in business long enough.
During natural disasters or other catastrophic events like the pandemic when financial needs are acute, CDFIs step in and mobilize quickly to provide access to capital, educational resources, and grants to small businesses—particularly those who, again, lack the banking relationships or high profits that entice lenders to jump in.
During the pandemic, when the federal government first began issuing PPP loans, sole proprietors—many of whom are underserved—were ineligible to participate in the program. AOF, alongside other CDFIs, fiercely and successfully advocated for their inclusion in the program. At ground level, we also launched our Small Business Relief Fund to raise philanthropy and debt capital for small businesses impacted by the pandemic. We provided over $1.5 million in grants, $10 million in payment assistance and debt relief, and over $300M in new loans and educational resources to 4.5 million small business owners across the country.
Now, in response to the fires in Southern California, we have launched our Rebuild Southern California Small Business Relief Fund to raise $100 million—$40M in philanthropic donations and $60M in debt capital—to provide relief and rebuilding resources to small business owners. We intend to provide loan payment relief, grants, new loans, and educational resources and technical assistance with the sole focus of helping rebuild impacted small businesses.
How has your involvement in BOI’s Microfinance Impact Collaborative helped you do the work you do?
This collaboration provides us with resources, insights, and networking opportunities, all of them invaluable.
Being a part of this group allows AOF to stay at the forefront of trends and challenges faced by small business owners. We exchange ideas and best practices with other like-minded institutions, and that helps us refine our approach to lending and support so we can meet the evolving needs of our clients.
It also fosters collaboration and innovation. We can work together to develop new financial products and services tailored specifically to underserved small businesses, amplifying our impact and broadening our reach.
Additionally, the group provides a platform for advocacy. By aligning with other leading financial institutions, AOF can strengthen its voice in policy discussions, advocating for systemic changes that benefit small business owners at a national level. The Collaborative enhances our credibility and influence, allowing us to push for initiatives that create a more impactful financial landscape.
Lastly, sharing knowledge and resources within this group helps us improve our operational efficiencies and expand our capabilities. By learning from the experiences of others, we can implement the best practices in our operations, which ultimately leads to better service delivery for our customers.
What are the biggest challenges you face in this work?
We face obstacles in customer acquisition, access to debt capital, and access to venture philanthropy.
First, as a non-profit, we don’t have the marketing budgets to directly access customers on a large scale. We rely on partnerships and referral sources such as PayPal, Intuit, and the National Restaurant Association to refer customers to AOF. We’re grateful to our partners, and we also acknowledge that CDFIs need to stop being the ‘best kept secret.’ It is our goal to forge more relationships with policymakers, corporate partners, and other stakeholders to get the word out. There is no reason why CDFIs should not have a greater level of recognition given the important work that we do offering capital and resources to businesses that need them the most.
Second, we borrow, and we lend. We need to be able to access scalable debt capital from traditional lenders and impact investors, and adding syndications, secured lending, and securitizations will be critical for us and other CDFIs to scale our lending. Over the next five years, we plan to reach more small business owners than ever before, and we’re looking to raise $225M in debt capital to do so.
Lastly, venture and catalytic philanthropy investment would allow us to scale up our operations and technology, launch new products, and expand our market reach enough to scale our balance sheet—letting us reach a point where we no longer need to rely on philanthropy to fund the small business lending operation. Traditional philanthropy is invaluable for our free business advising and coaching services, and for our ability to innovate and test new products and programs—but traditional forms of philanthropy are not suited to scale a lending operation. In this regard, we’re similar to a private company raising venture capital. We need help from organizations and individuals who share our values, our vision, and our passion for investing in small businesses.
What are you excited about?
I’m excited about proving that small dollar lending to underserved small businesses can be done responsibly, at scale and in a financially self-sufficient manner. I’m excited to help transform the small business space to attract more lending institutions, form better partnerships for customer acquisition, and unlock access to the capital markets. I’m excited about more businesses being served with better financial products.
