U.S. Bank Case Study

Minneapolis-based U.S. Bancorp, the parent company of U.S. Bank National Association, launched its Business Diversity Lending Program for minority-, women-, and veteran-owned small businesses in March 2023, building on a long-standing program inherited through an acquisition of MUFG Union Bank.

Union Bank was an early adopter of Special Purpose Credit Programs, introducing its Business Diversity Lending Program in the early 1990s. The program was available within Union Bank’s footprint – primarily California, Oregon, and Washington – to businesses that were majority-owned by minorities, women, and veterans.

U.S. Bank, the nation’s 5th-biggest commercial bank, announced its plans to acquire Union Bank in September 2021, and that acquisition was completed in December 2022 with the main customer conversion occurring in May 2023. Prior to this announcement, U.S. Bank had been exploring the possibility of developing a Special Purpose Credit Program to support diverse small businesses, so due diligence in anticipation of the Union Bank acquisition quickly surfaced the opportunity to build upon the Business Diversity Lending Program.

The Business Diversity Lending Program aligned well with U.S. Bank Access Commitment™, the bank’s long-term approach to helping underserved communities build wealth. The commitment is comprised of multiple initiatives, including a mortgage program focused on homeownership education and the creation of a Business Access Advisor role that works with diverse-owned businesses to address the three most prominent gaps that limit business growth and employment opportunities: information, connections, and capital.

Following the Union Bank acquisition, U.S. Bank saw the opportunity to expand the Business Diversity Lending program beyond the Union Bank 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). In doing so, the bank was expanding opportunity for a vital portion of the business community. About 1.24 million or 21.4% of businesses with paid employees in 2020 were women-owned, according to the latest U.S. Census data. In addition, 1.15 million or 19.9% were minority-owned, and 320,864 or 5.6% were veteran-owned. 

Under the 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, minority and/or veteran.

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 that would be needed to build a new program – from developing a written plan to discussing the plan 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. Teammates who joined U.S. Bank from Union Bank also played critical roles in developing the program, sharing their experience and expertise.

Key steps in the process included:

• Identifying sources of research to support the community need for the program, a key element in any Special Purpose Credit Program written plan.
• Determining specific underwriting criteria and the process by which modified criteria would be applied.
• Modeling the potential impact of the program across an expanded footprint.
• Incorporating all of the above into a full written plan and sharing the plan with internal risk partners and regulators to ensure compliance with applicable laws and regulations.
• Technical planning across multiple systems, including adapting a program that had been entirely paper based to an automated process that would be accessible through an online application.
• Training all bankers across branch, small business, and business banking.

The team was familiar with Special Purpose Credit Programs before starting this journey but nevertheless encountered some hurdles in gaining buy-in across the organization:

1. Internal partners who hadn’t previously been introduced to the concept of a Special Purpose Credit Program were unsure about the legal and compliance implications of offering a program tailored to a particular audience. It is important to be prepared with background on precedents and regulatory guidance to support socialization efforts across your organization.
2. U.S. Bank learned from Union Bank colleagues that bankers played a critical role in introducing the program to small business customers, and there was some concern about bankers’ asking business owners questions about their demographics as part of the application process. This meant that in addition to providing technical training on the program details, it was important to provide talking points and model conversations to help them be prepared.

With the program having only launched in March 2023, the portfolio is not fully mature but early results are promising. U.S. Bank is tracking both the total loans granted to all eligible business owners who opted into the program, and the subset of those loans that specifically benefited from the modified underwriting criteria that were developed. Tracking both measures has made it possible to more specifically assess the impact the program is making by extending access to capital to those who might not have attained it before. Overall, U.S. Bank has seen 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.