Luz Urrutia | Accion Opportunity Fund

Jennifer Tescher:
Welcome to Emerge Everywhere. I’m Jennifer Tescher, journalist turned financial health champion. As founder and CEO of the Financial Health Network, I’ve spent my career connecting forward thinking leaders to the growing Fin Health movement. Now, I’m sharing these conversations with you. Discover how these visionaries are challenging the status quo and improving financial health for their customers, employees and communities.

I go way back with my guest today, Luz Urrutia. She is a close friend and co-conspirator on the quest to create an inclusive financial system. Luz’s passion is rooted in her own experience of moving to the US from Venezuela as a credit-invisible and she has spent her career supporting underserved communities through advocating for their voice in the financial system. Right now, in the midst of the pandemic, Luz’s focus as the CEO of the Accion Opportunity Fund is on small businesses that have largely been crippled by this crisis. She is an innovative and fierce leader that I am always grateful to have on my side.

Luz, welcome to EMERGE Everywhere.

Luz Urrutia:
Hi Jen, how are you? Thank you.

Jennifer Tescher:
I’m good. I see both of us are sitting in our home offices today, but I really appreciate you coming on the show. Luz is the CEO of Opportunity Fund, now Accion Opportunity Fund. And you’ve really been at the forefront of efforts to help small businesses both before the pandemic, but particularly since. These businesses have really taken the brunt of the pandemic, particularly the services industry. And I’ve seen estimates that it could be that a third of small businesses don’t end up reopening. And particularly, now that we’re in this like one step forward, two steps back, tremendous amount of uncertainty, which I think must make it very difficult for small businesses. So how are small businesses in this country faring? Are they in the clear? Are they doing better? Paint us a little bit of a picture.

Luz Urrutia:
Sure. Well, first of all, delighted to be here. Thank you again for this opportunity. Always a pleasure to spend some time with you. So Jen, I would say that first it’s important to recognize that not all businesses are created or impacted equally. So yes, many small businesses were decimated, but others report that they’ve had some of the best months during the pandemic. And it really all depends on what industry they operate, and frankly, in what state they operate. In general, we see cases were falling, states lifted all their restrictions, and then the Delta variant hit. And some restrictions have been restated, consumer confidence has definitely slowed down. We hear it from our small business owners.

Many small businesses are still struggling. And we’re not going to know the final count of how many shot and how many of those came back open until much later, I think. But businesses are saying that it’s going to take them a while to recover. There’s been a number of studies that have been done. The Harvard University data shows that 36% of California small businesses that closed during the crisis have not yet reopened. And the 11th highest number in the nation. But of course, we’re a big state. And overall, the pandemic resulted in the permanent closure of roughly 200,000 small businesses, above historical levels.

But we also know that after major economic downturn, small businesses lead the way. They did it after the great recession, and I know they’re going to do it again. But it’s going to take really an intentional effort by many constituents and partnerships working together to get them the resources that they’re going to need, so they can adapt, they can rebuild. And again, because not all businesses are created equal, they all need different types of support or different types of intervention. Some businesses are frankly not in a position to borrow money, because debt is not a replacement for revenue. These businesses need grants, they need equity. Others need access to capital, and they’re very much in a position to do it. And all of them need access to technical assistance, business advising, and other support networks to continue moving forward.

Jennifer Tescher:
So that’s a lot. That’s a lot of work. I can see why you’re so busy. And I want to go a little bit deeper into those various supports that are needed. But before we do that, on this idea that small businesses aren’t created equal, that they’re all different. They’re also different based on who owns them. And minority-owned* businesses, from all accounts, have taken an even larger hit. I think 10% more likely to have reported that they’ve closed their businesses for good compared to white business owners, and the list goes on. What insights do you have into how minority business owners are faring? And are there unique challenges that they face as we’re thinking about supports and solutions?

Luz Urrutia:
Unfortunately, the answer to all of the above is yes, yes, and yes. It’s widely known that businesses owned by people of color, immigrants and women were the most impacted. There’s been a number of surveys. In April, the national advocacy organization Small Business Majority found that 36% of small businesses said that their conditions were somewhat improving for their businesses, compared to a month ago. And 5% only said they were greatly improving. However, this same survey found that black-owned small businesses continue to experience disproportionate setbacks. 35% of black entrepreneurs report that their business conditions are worsening, and 37% say they may not survive the next three months.

The same thing with a Small Business Majority survey, with our partner, Start Small Think Big, found that over half of small businesses with less than 100,000 in revenues were able to receive funding of any kind compared to 90% of larger businesses. And then when you compare white-owned businesses, 61% of small businesses owned by white owners were more likely to obtain financing compared to 50% of black and 50% of Latinx businesses. So if the question is, why did black, indigenous, and people of color owned businesses have a harder time receiving funding and are having a harder time recovering? The answer is real simple. They’ve been shut out of the traditional financial system. And as a result, they’re struggling more than their white counterparts.

Jennifer Tescher:
So in that context, let’s talk a little bit about Accion Opportunity Fund. In fact, you actually did a merger with Accion USA, March 11th, 2020, right on the eve of the lockdown. Talk about the organization and the role you play in supporting small businesses, and how that has evolved or changed as a result of the pandemic.

Luz Urrutia:
Sure. So you are absolutely right. I think it was Gina Harmon, who you obviously know well, and I tell our story. And we both feel like Indiana Jones in the famous scene in Raiders of the Lost Ark, when he barely slid under the gate. But that’s how Gina and I felt about this combination, to be honest. We combined Opportunity Fund and the Accion U.S. Network a few weeks before we all had to go shelter-in-place in mid-March of 2020. And mergers are generally difficult between nonprofits, they rarely happen. 95% of them fail.

But back in 2018, when I came to Opportunity Fund, succeeded Eric Weaver as the former founder and CEO. Accion had gone through their strategic plan. And they determined that they could deploy a billion dollars in capital in the next five years. Around the same time, I joined Opportunity Fund, and we had done a strategic plan that we could deploy a billion dollars in the next five years. Gina and Eric had been talking about potential combination for years. And I think that with the change of administration, me coming in new, Gina and I got together and we believed it would probably be a good time to restart conversations.

And so we looked at this from a business perspective. Why do we duplicate these exact same goals of deploying a billion dollars to underfunded small businesses across the country? Why do we raise the capital and invest in this infrastructure separately when we can do it, because we have a shared vision, a shared mission, and shared values, we could do it together and have more impact, right? And have every dollar that we raise be better leveraged. And so we were going to scale lending to businesses owned by people of color and women. We really believe there needs to be an organizational structure that’s integrated, whether it’s leadership, technology platform, credit risk, data, partnerships.

And so together, that’s what we’re doing. We’re working to become a national lender, that’s developing products, that is going to be transforming the model CDFIs have had in the US. It’s really hard, you and I have talked about this multiple times, to scale a lending business with boots on the ground, by itself, as your sole customer acquisition platform. And so we believe that there is an opportunity to do it more effectively, more efficiently and do it at scale. And so we’re leveraging a lot of technology. We opened up a call center, that’s now seven days a week, 15 hours a day, we’re using a lot more data analytics. We’re expanding partnerships, because we believe that the size of the problem of capital in this country is so significant that it can not be solved by one, or two, or 10 CDFIs.

It’s got to be a compilation of partnerships across private and public sector, to help us get the access to capital, and get the resources that small businesses need, while at the same time, making sure that you’re meeting the customer where they are. Not all customers are ready to get digital. Not all customers are ready to go A to Z, without having that face-to-face, or digital these days, Zoom-to-Zoom interaction, so you have to build customer service models, particularly for these communities of color, women and immigrants, that meets them where they are in their journey, and carries them and gives them access to use the resources down the road.

Jennifer Tescher:
Okay. There’s a lot there. We could have this conversation all day, but I want to take a step back. Go back and tell our listeners, in case they’re not familiar, a little bit more about the offerings. I could simply describe Accion Opportunity Fund as a micro business lender or small business lender, but I don’t think that would do it justice. So describe a little bit more about your offerings and who your target customers are, and also give people a sense of your scale and reach.

Luz Urrutia:
So Accion Opportunity Fund today, we are one of the leading nonprofit CDFIs, community development financial institutions, in the country, providing responsible capital, business advising, coaching, technical assistance, and other wraparound services for businesses. Nearly 90% of the businesses that we work with are owned by people of color, women and immigrants. In terms of our scale, we have a $200 million balance sheet. We have about 6,500 customers in our portfolio. The typical profile of our customers are businesses, definitely, I’d say 90 plus percent under 10 employees. The vast majority really are under three employees. So we’re working with the smallest of the smallest businesses, that really have no access to other type of financing, and have a very difficult time accessing the resources that they need in order to be able to grow and have their businesses thrive.

Jennifer Tescher:
And so what kind of loan sizes are typical for you?

Luz Urrutia:
So we go anywhere from $5,000 to $200,000. And I know that’s a wide range, but we work with different types of customers. One is the equipment financing. So we are the largest lender to mobile food trucks in California, as an example, which is an incredibly self-sufficient and mission-driven business. We also finance sole-owner operators of long haul trucks. The transportation industry, as you can imagine, over the last 18 months has been booming, because it has been so necessary to move goods back and forth between states, and within states.

Jennifer Tescher:
Let’s talk a little bit more about the policy front. There’s been a lot of action there on a number of different fronts, actually. Whether it’s low-cost capital or grants, whether it’s pushing banks to do better in their own lending records, and on and on. What are you seeing out of Washington, or frankly at the state level, that you’re excited about and where do you think we need more or different?

Luz Urrutia:
Sure. So I think we all know, look, the Biden administration, they’re great supporters of CDFIs. The CDFI fund earlier this year launched a rapid response fund to provide $1.25 billion worth of grants to about 860 plus CDFIs. Great funding. This is capital that CDFIs can use to support economic distress in communities. Also, the America Rescue Plan Act was signed, that provided $10 billion in the State Small Business Credit Initiative. A wonderful program to help business lenders with loan loss reserves, with guarantees in different states. I think we all saw that when CDFIs are given the resources, they can stretch significantly to meet the enormous demand for capital, and technical assistance in the markets.

And CDFIs, for better or for worse, are truly helping these small businesses that have been left behind by the traditional financial system, whether it’s in dollars deployed, numbers of businesses that we help, their target populations that we reach. And these are really the tiny, tiny, small businesses. I will say one thing, Jen, regardless of party lines, all of us really need to rethink how we want to rebuild our economy. And supporting small businesses with resources is critical. Whether it’s capital, support networks, business advising, equity. That’s going to be a huge part of this recovery. I will say that the small business lending landscape, from a regulatory perspective, is lacking some things. So for example, if you take a look, if you go and get a mortgage today, or you buy a car, you are going to get what’s called the truth and lending disclosure. And that is going to tell you, what is your rate, what is your term, how long the loan is going to take to pay off how much you’re going to pay. None of those protections exist in small businesses. And so we think that’s a huge problem. Businesses ought to be able to make decisions for themselves and understand what type of credit they’re taking.

So having a federal, and it’s being introduced, a federal Truth in Lending Act is going to be crucial. And I would beg participants to support this, because every small business owner has the right to know what kind of credit they’re taking. The other piece is section 1071, as you know, which was part of Dodd-Frank over 10 years ago, mandate to collect data on small businesses owned by minorities and women. We need to understand who are the actors in the space that are lending to small businesses, what products are they providing and at what rates. And that, to date, hasn’t happened. We’re now reviewing the final rule, providing feedback. But golly, we need to get that implemented and we need to get it implemented soon.

This small business credit initiative that I just talked about is extremely powerful, because that gives states critical funding so that small businesses can get access, because lenders now feel more comfortable in opening their credit box and being able to lend to businesses that may perceive to have higher risk, but in reality, they don’t. So a lot of things going on, a lot of things in the horizon, and we’re very excited about them.

Jennifer Tescher:
I want to talk about a different aspect of everyone coming together. Like you said, we need everybody involved here. And that’s the private sector. You have struck some interesting partnerships in your time at AOF. And the one that I’ve always been most taken by is the one with LendingClub. LendingClub is a very large online lender. And I believe that your partnership with them is really to help, from a scale perspective, bring more potential customers to your front door. I wonder if you could talk a little bit more about how that partnership works, and what it takes for an organization like yours to be able to engage in a partnership of equals, if you will, with a large publicly traded company, that now actually also owns its own bank.

Luz Urrutia:
So the LendingClub partnership has been incredibly impactful for our organization. I think it has been mutually beneficial, which is what every partnership should be. Today, we are getting referrals from LendingClub. It is a cold marketing partnership, so all small businesses that come through the LendingClub portal are redirected to Accion Opportunity Fund. And we take those who are fitting within our target market and within our credit box, and we underwrite them and we provide capital. And then those that are outside of our target market, we are referring out to other partners, who are then doing their underwriting and providing loans, or brokering them through other sources of capital.

Jennifer Tescher:
Luz, you have had a fascinating career journey. 18 years of what was then what Wachovia Bank, before becoming one of the earliest innovators in FinTech, frankly, before it was even called that, back in the early 2000s, which is when we met each other. What drove you to make the shift from banking to a startup founder, and now, to running a nonprofit lending organization? What’s the through line? Help us understand you.

Luz Urrutia:
Sure. So you’ve heard the story many, many times, Jen. But when I moved to the US from Venezuela to finish my undergraduate, I worked at a bank. At the time it was Wachovia Bank. And I applied for a $500 credit card, from that same very bank that I worked for. And I was turned down because as an immigrant, right out of college, I had no credit history. So they were able and willing to give me a job, but not trust me with a $500 credit card. And I learned a hard lesson, that most banks do not give credit to people with no credit. And 30 plus years later, not much of that has changed.

But I worked at the bank for 18 wonderful years. But that day I made a promise to myself that I, one day, would lead an organization and would work in bringing responsible and affordable financial services to people who don’t have access, folks like me at the time. And that’s really how I have spent the past 35 years of my career. I founded El Banco, which was that community bank in Georgia, that you were so instrumental in mentoring and helping me grow. Then leading the expansion of a growing for-profit CDFI, headquartered in the Bay Area. And then in 2017, I realized that I needed to work in an organization where I could start with a mission, and allow the mission to drive the financial sustainability of the organization. And that’s how I found my way to Accion Opportunity Fund, which gives me the opportunity to do exactly that.

Jennifer Tescher:
We often talk about mission and margin, and balancing those two things. And you have attempted to do that from, I think, almost every possible vantage point. And I’ve been thinking a lot about this lately, about how particularly when an organization is attempting to scale, it can really put pressure on that idea of doing both mission and margin. What have you learned about that over the length of your career? Is it really possible to do both and continue to scale and grow one’s impact?

Luz Urrutia:
The answer is, what have I learned? It is probably the hardest, most difficult job and thing to do that I’ve ever done, and it’s also the most rewarding. You know that, because again, you’ve been on this journey with me as a mentor, as a confident, as a supporter.

Jennifer Tescher:
We’re like a mutual fan club. Right back at you.

Luz Urrutia:
Yes. Yes. Yeah, we are. We are. But I would say that I see firsthand, and I have seen this, whether it’s in the for-profit or now in the nonprofit world, that when we focus on building a more inclusive financial system, one that helps to bring everyone along and provides people the opportunity to chart their own path, we, as an organization, can affect profound economic and social changes. And by helping others, our organizations, again, for-profit and nonprofit, we become stronger, and we are in a much better position to scale and help more people for generations to come.

And so, I don’t think that those mission and margin always are equally weighted, at every meeting and at every decision, but all-in-all, when you look at the overall portfolio and the overall things that the organization is doing, there has to be a balance. Because I always say, if there’s no margin, you really cannot execute the mission at scale. But if you don’t have a mission, your business survivability over time and your success is going to decline.

Jennifer Tescher:
Luz, you have increasingly been recognized as an incredible, innovative leader. You were just named Forbes 50 Over 50. You’re increasingly heralded and seen as the leader that you are. You’re also increasingly recognized as a critical leader in the Latinx community. This is Hispanic Heritage Month, I wonder if you could reflect a little bit on that. You told us your story of coming to this country, and the fact that you were not from this country made it difficult for you to get credit, and that launched the rest of your life’s mission and purpose. How do you bring your sense of identity to the work that you do?

Luz Urrutia:
Wow. That’s a very important, powerful question, and an emotional one, frankly. It’s interesting, because when I look at my career, I can pinpoint every single thing I’ve done to the efforts of others around me. Nothing that I have accomplished, from learning English, to starting to work at a bank, to getting a graduate degree, it has always been fueled by mentors, and sponsors, and friends, who believed I could do it.

And my parents, my mother in particular, she always said to me, “If you don’t do it and fail, you will never learn, so you’ve got to move forward. And wherever you go, do not let gender, race, age, get in the way. Always look to leave every situation better than when you got to it.” And so to me, I don’t look at what I’ve done as something extraordinary. I do look at the people that have surrounded me as being extraordinary, and having believed in me, and having given me the opportunity to believe in myself, that this all can get done. If you put your heart, and your mind, and your purpose to it, you can do it. And so it’s a community effort. My life has been about community. It has not been about any individual accomplishments that I’ve made on my own.

Jennifer Tescher:
I think that is a great place to end our conversation. Luz Urrutia, thank you so much for joining me on EMERGE Everywhere.

Luz Urrutia:
Thank you so much, Jen. Always a pleasure to be with you.

Jennifer Tescher:
This has been Emerge Everywhere, a Financial Health Network production. If you like the show, please help spread the financial health message by leaving a review. And if you have ideas for future guests or thoughts on the show, please click on the link in the show notes to connect with us. See you next time.

*Update 1/12/2022: Since the time of this recording, the Financial Health Network has acknowledged the problematic nature of the term “minority-owned business,” and will transition away from its use in our communications. Using the term “minority” to describe people of color is not only inaccurate due to changing demographics in the United States, but problematic as it reinforces marginalization of groups with historically less social standing or power as separate from and outside of the majority. In the future, we will refer to businesses owned by people of color as such.