With new alliance, Eastern Bank is dropping barriers to credit for minority and underserved businesses

It is simply a fact, repeated in study after study locally and nationwide: Small minority-owned businesses struggle to get bank loans. They may not have strong credit histories or valuable collateral to put up for a loan, and they may not have relationships with banks that can help them get in the door.

The Equity Alliance for Business — a new program assembled by Eastern Bank and several non-profits that serve minority-and LGBTQ-owned businesses — is hoping to change that by radically lowering the barriers to bank loans for disadvantaged entrepreneurs.

The idea is that minority/woman/LGBTQ+ entrepreneurs who are being supported and trained by groups including the Black Economic Council of Massachuetts and the Massachusetts LGBT Chamber of Commerce can use those relationships to lower the requirements for a small business loan from Eastern Bank.

“For loans, up to $100,000, when the business is partnering with one of our community referral organizations, that they've either gone through a technical assistance program or they have been doing other training and development with those nonprofits … we have actually eliminated the minimum credit score requirement,” said Quincy Miller, Eastern Bank president.

Under federal “fair banking” rules, all borrowers are required to meet the same criteria for getting a loan, but Miller said that winds up creating unfair outcomes, because, for example, a minority entrepreneur may not have the credit history or collateral that a white borrower with generational wealth can bring to the table. The result of applying identical criteria is a disparity in who gets loans.

Miller said it took Eastern Bank a year to prove this disparity to federal regulators, which allowed them to open a “special purpose credit program,” creating lower thresholds for disadvantaged businesses to qualify for the same loans — including reducing and in some cases doing away with a credit score requirement. That, he said, “is pretty groundbreaking.”

The key, Miller said, is working with partner organizations that train and mentor small businesses, and that can provide a kind of “character reference” that the businesses are ready for the financing. Those nonprofits “spend every day helping to invest back into women-owned businesses, community businesses of color, etc.” he said. “They have those relationships. We're leveraging the character aspect of credit, which is an important aspect, not just the numbers part of credit.”

Karla Morales, who runs a Marlborough-based cleaning service called Your Home Detox and a website called Bohio Clean to connect other cleaners to new clients, is the first to get a loan under the new program. Morales — who currently employs 10 people — said her vision is to run an eco-friendly cleaning service and also “ethically connect” potential customers and cleaning service providers, to help “ensure that people who work in the cleaning industry are getting paid for the work that they do.”

But she first needed financing to keep that vision moving forward.

“We were constantly denied by other banks,” Morales said. Because she didn't have credit history at the time and since the business was new and did not have a track record, “it was difficult for me to get capital.” Morales got a $100,000 loan that she plans to use for sales and marketing, as well as to have a cushion to cover costs when commercial customers are slow paying their bills.

Daniel Vidaña, president of Innovation Studio, a local small-business incubator, said the new credit offering from Eastern Back is a big step forward, but it is not a magic solution for everyone.

Vidaña said that even Eastern can’t give a loan to an entrepreneur who has not registered their business, set up a company bank account or who hasn’t been sending invoices to customers. These are things that the community organizations like his can help entrepreneurs put in place, so that they are ready to go to a bank like Eastern for funding — and they can come to the bank with the endorsement of a trusted community partner.

Eastern’s loan package “is not a solution for everybody, but it clearly clears the decks for some people who are almost there,” he said.

Vidaña said he is not aware of other banks that are working on this kind of credit flexibility. “I applaud Eastern Bank for doing that because I think it's a long time coming,” he said. And he says “they have the right relationships with the other organizations and vice versa to essentially support the unique needs [of companies] that are going to be part of this process.”

But he cautions that “the time frame for us to know whether this is an impactful approach is going to be a while.”

One of the partner organizations in the new alliance is Mill Cities Community Investments, a Lawrence-based nonprofit lender that already offers loans specifically tailored to traditionally underserved communities. Executive Director Glynn Lloyd said it is important for commercial banks like Eastern to look for new ways to get capital to minoirty-owned business. “The credit system has discrimination built into it,” Lloyd said. “For a lot of Black and brown people, the credit scores reflect some institutional racism.”

So Lloyd says he is excited about being part of Eastern’s new alliance “because this is an example of where you have a really untraditional bank trying to figure out how do we get debt products out to our folks that have been historically kind of shut out.”