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| ## Com |   |                                                         |   |
| ptroll |   |                                                         |   |
| er of  |   |                                                         |   |
| the Cu |   |                                                         |   |
| rrency |   |                                                         |   |
|        |   |                                                         |   |
| > A    |   |                                                         |   |
| dminis |   |                                                         |   |
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| > of   |   |                                                         |   |
| > Na   |   |                                                         |   |
| tional |   |                                                         |   |
| >      |   |                                                         |   |
|  Banks |   |                                                         |   |
+--------+---+---------------------------------------------------------+---+
| ## Su  |   | ## Financing Minority Businesses                        |   |
| bject: |   |                                                         |   |
+--------+---+---------------------------------------------------------+---+

**TO:** Chief Executive Officers of All National Banks and National Bank
Operating Subsidiaries, Department and Division Heads, and All Examining
Personnel

##### PURPOSE 

The purpose of this advisory letter is to identify ways in which
national banks can satisfy the financing needs of minority business
entrepreneurs (MBEs), consistent with safe and sound banking practices,
and to describe risk mitigation techniques useful in this line of
business. The advisory letter also provides information on strategies
that some national banks have used successfully to provide credit and
investment capital to a growing MBE market.

This advisory letter replaces Advisory Letter AL 98-9, "Financing for
Minority Small Businesses," issued in 1998. Since the issuance of AL
98-9 there has been significant growth in the minority-owned small
business market, consolidation within the banking industry, and periods
of growth and decline in the general U.S. economy. All of these
activities have affected the availability of credit and investment
capital for MBEs.

##### BACKGROUND 

##### 

##### Barriers to Credit and Investment for MBEs

In 1998, AL 98-9 identified the key barriers to MBEs attempting to
access credit and investment capital. Those barriers included
difficulties in accessing convenient full-service branches, the lack of
technical and management assistance, language and cultural impediments,
and a lack of products that met MBEs' needs. These barriers continue to
exist today.

###### Access to Credit

An inadequate credit history is often cited as a serious impediment for
MBEs attempting to obtain bank financing. MBEs often find it difficult
to secure business loans if they do not have an established business
credit history, or if their business or personal credit history is
blemished. MBEs facing this challenge report that they often use
personal credit cards or home equity lines to pay for short-term working
capital needs. These types of credit can be expensive, tie up the
owner\'s personal assets, and prevent businesses from developing a
separate credit history. Also, MBEs tend to have higher participation
rates in the retail and service industries[^1] -- sectors that tend to
have lower capital investment requirements often resulting in
insufficient collateral available to secure financing from banks.
Smaller loans often needed by MBEs, in the \$5,000 - \$50,000 range,
continue to be difficult to access because loans in such relatively
small amounts are less cost-effective for banks to provide.

###### Access to Investment Capital

Recent economic conditions have reduced the overall availability of
venture capital investments and may have adversely affected some MBEs'
efforts to expand. Likewise, MBEs that are expanding have had difficulty
gaining access to the appropriate capital market networks.

MBEs tend to be smaller, with less revenues and employees than
comparable majority firms. Studies indicate that 80 percent of all MBEs
have annual revenues of less than \$100,000.[^2] Research shows that
smaller firms are less likely to survive than larger firms, and that
single-unit firms are more likely to close than firms with multiple
locations.[^3] Surveys also have established a direct correlation
between the amount of start-up capital at the launch of a small business
and the survivability of the new company.[^4] MBE survivability
therefore is dependent on growth, and growth is dependent on access to
investment capital.

Taken individually or as a whole, the result of these barriers is that
MBEs continue to have difficulties in accessing credit and investment
capital needed to start or grow their businesses.[^5]

##### 

##### Growth and Opportunities in the MBE Market

###### Growth in the MBE Market 

The growth of MBEs, both in number of firms and in sales, nevertheless
indicates that this is likely an untapped market for bank credit and
investment products. According to the most recent information from the
1997 *Survey of Minority-Owned Business Enterprises (SMOBE),* there are
an estimated 3 million MBEs in the United States generating revenues of
\$591 billion.[^6] These 3 million MBEs represent an estimated 15
percent of all private U.S. firms. The snapshot taken from *SMOBE* for
the ten-year period beginning in 1987 and ending in 1997 illustrated a
17 percent annual increase in the growth of MBEs, which far surpassed
the 3 percent growth rate for all businesses during this period.
Asian-owned firms increased by 18 percent per year, while Latino-owned
firms grew by 23 percent and African-American-owned firms by 11 percent,
annually. Similarly, sales by MBEs rose 34 percent during this period,
while sales for all firms increased 13 percent. MBE sales growth was
therefore more than twice the national average during this decade. It is
also estimated that MBEs employ 4.5 million workers -- many from the
minority community work force.[^7]

##### *Opportunities for Banks* 

Banks that have shown an interest in cultivating the MBE segment of the
commercial market do so for a variety of reasons. First, these banks
view MBE relationships in the context of the overall profitability of
the MBE customer's accounts. MBEs, like their majority small business
counterparts, can provide banks with significant deposits and fee-based
revenue from services such as cash management and owner trust and wealth
management products. Small business owners often link their business
needs with their personal banking and wealth management needs, so that a
bank acquires both business and personal accounts. It is not uncommon
for these banks' small business portfolios to generate deposits in
excess of their loan business.[^8] These banks recognize MBEs as a
fast-growing market segment and expect banking relationships with MBEs
to provide profitable referrals within the minority business community.
Finally, the banks believe that some MBEs are well-positioned to expand
their businesses into foreign countries as a result of their ethnic
ties.

##### BANK STRATEGIES FOR MBES

**Marketing**

##### *Bank-Wide Commitment* 

To be successful, bank programs designed to attract and lend to MBEs
should have a dedicated focus on particular segments of the minority
business community, with centralized coordination from the leadership of
a bank. Bank personnel at all levels and functions must support MBE
goals and programs in all of a bank's local communities. Development and
sharing of publicly stated goals for MBE lending, along with adoption of
programs to achieve these objectives, are also critical to maintaining
visibility and focus.

##### 

##### *Branch Business* 

MBEs are heavily concentrated in low-income and inner-city areas and are
positioned to take advantage of strategic business opportunities
untapped by other competitors. As a result of this market opportunity,
as well as the Community Reinvestment Act (CRA), some banks have
expanded their branch presence in low- and moderate-income and minority
communities, while others have expanded branch business hours. These
branches have served as a gateway for banks to attract new MBE loan and
deposit business. Additionally, banks have increased the ethnic
diversity of staff employed in branches to better reflect the
communities' cultural background.

###### Outreach In Diverse Markets 

Banks should employ a variety of communication and marketing channels to
attract the business of MBEs. For example, some banks have had success
in tailoring retail branch designs to make them more accessible and
attractive to particular ethnicities. Bilingual signs and merchandising
are also important. Some banks even tailor their institutions' entire
branding concepts in other languages to resonate with particular ethnic
segments. In addition, these banks employ bilingual and bicultural sales
forces that are focused on minority lending. Banks have found that a
dedicated focus builds trust, provides education, and nurtures long-term
relationships.

*Marketing Partnerships*

Many banks have tapped successfully the MBE market by developing
business relationships with minority business advocacy organizations and
local chambers of commerce. These organizations frequently offer
opportunities for lenders to network with MBEs. The U.S. Small Business
Administration (SBA) and the Minority Business Development Agency (MBDA)
of the Department of Commerce, frequently hold networking forums that
provide banks the opportunity to offer one-stop shopping to MBEs, with
loan information and technical assistance all in one setting. Bank
involvement in these types of activities helps to build credibility and
spread the word that banks are seeking business opportunities with MBEs.

###### Technical and Management Assistance

Mentoring and technical assistance play a critical role in enabling MBEs
to access capital. Banks that have effectively tapped the MBE market
often have established partnerships with nonprofit organizations and
government agencies that can provide early-stage MBEs assistance and
advice on developing business plans and financial statements. Obviously,
not all MBEs require the same type and level of technical assistance.
The MBDA generally categorizes MBEs according to their revenue size for
purposes of determining the type of assistance that might be
required.[^9] For example, microenterprises with less than \$100,000 in
annual revenues may need a full range of technical, planning, financial
accounting, and marketing services, while early-stage and emerging MBEs
may need assistance in networking with equity providers. Finally,
high-growth MBEs with national or international markets may need a
higher level of technical assistance often referred to as "strategic
coaching."

The SBA and MBDA operate technical assistance centers at many locations
around the nation. These centers offer a wide range of management,
planning, and technical assistance services that are tailored to the
specific needs of individual small businesses, including MBEs.
Additionally, the SBA encourages its participating lenders to refer
applicants that they consider not ready to borrow to one of its
technical assistance offices. For more information on the locations and
services offered at SBA and MBDA technical assistance centers, please
visit the OCC's Small Business Resource Guide, which is available on
OCC's Web site at
[www.occ.treas.gov/cdd/commfoc.htm](http://www.occ.treas.gov/cdd/commfoc.htm).

Another technical assistance resource for microenterprise and early
stage MBEs is small business incubators. Incubators focus on assisting
small businesses to develop planning skills through intensive management
and technical assistance and guidance on financial reporting. Banks can
provide support to incubators through contributions of time and money
and by serving as directors and instructors for incubator clients.

##### Some banks have found success in helping sole proprietors and microenterprises that lack credit histories or have blemished ones to build a credit record by providing them with a secured business credit card. Once the MBE has built an acceptable credit history, the customer is graduated to an unsecured credit card or small business loan.

## Underwriting

Banks that have been successful in lending to MBEs have learned to
balance judgmental underwriting systems with the new technology provided
by credit scoring models. While neither underwriting system is perfect,
banks that rely exclusively on credit scoring systems, also known as
scorecards, may find them reducing relationship lending opportunities
with MBEs, which may not receive the top scores under these models.

##### *Credit Scoring Models*

Credit scoring models, if properly managed, can offer a fast,
cost-efficient method of making sound decisions based on bank or
industry experience. Banks using small business credit scorecards tend
to be larger in size and volume, and they often use credit-scoring
models for loans under a certain dollar threshold, while judgmentally
underwriting loans above that limit. These banks' credit scoring models
use credit characteristics such as delinquency and default experience to
predict the performance of potential borrowers and to serve as an
effective portfolio and risk management tool. These models also help
banks track loan performance across loan officers and, through the use
of objective numeric risk ratings, can lead to more consistent
underwriting.[^10]

##### *OCC Guidance on Credit Scoring Models*

OCC Bulletin 97-24 provides guidance on the use of credit scoring
systems.[^11] The bulletin outlines guidelines banks should follow for
proper scorecard management, including proper monitoring of scorecard
performance, including the performance of overrides. OCC Bulletin 97-24
also points out that banks should recognize that credit scoring systems
are only a tool and that disparate treatment on a prohibited basis can
occur if, for instance, (1) credit information is characterized
subjectively before being entered for scoring, or (2) assistance is
provided to improve one applicant's qualifications and not those of
others. The bulletin also cautions banks against including in their
credit scoring systems variables that have little influence on the total
credit score; yet disadvantage applicants on a prohibited basis to a
statistically significant degree.[^12]

The use of credit scoring by banks also helps promote the development of
a secondary market for the sale and securitization of small business
loans. The use of credit scoring models as a tool for underwriting,
should result in more refined estimates of loss-probabilities, allowing
for greater potential for securitization.

## *Second-level Reviews* 

Banks that have successfully deployed credit-scoring models have also
developed processes to work with borrowers who do not meet the scored
credit criteria. These banks often will establish second-level review
processes using judgmental underwriting in which all denied applicants
meeting certain nondiscriminatory criteria (e.g., length time in
business) are reconsidered by a senior credit officer or review
committee. Alternatively, some banks that use scorecards send all
applicants achieving marginal scores to departments that handle special
small business loan products and government programs. In all cases, a
bank must comply with fair lending laws that prohibit discrimination
when making credit decisions.

##### 

##### *Special Purpose Credit Programs under Regulation B*

A Special Purpose Credit Program (SPCP) is a tool banks can use to
increase the availability of credit to underserved populations,
including MBEs (12 CFR 202.8). SPCPs allow for-profit lenders to extend
credit to a class of prospective borrowers who, under a bank's customary
underwriting guidelines, probably would not receive such credit or would
receive it on less favorable terms than are available to other borrowers
who meet the bank's underwriting criteria. Applicants under an
established SPCP may be required to share a common characteristic, which
might include race, national origin, or gender. SPCPs must be
established and administered in accordance with a written plan that
supports the need for the program, identifies the class of applicants
the program is designed to benefit, and establishes the procedures and
standards for extending credit under the program. The written plan must
also state how long the SPCP will be in effect or when it will be
reevaluated.

Banks establishing SPCPs should be vigilant in monitoring portfolio
performance as well as the program's adherence to both the spirit and
letter of Regulation B. Banks are encouraged to discuss their plans for
a SPCP with the OCC.

##### 

##### *Self-Testing Option under Regulation B* 

The Federal Reserve Board published a final rule 12 CFR 202.5(b) (1),
which became effective April 15, 2003, permitting banks the option of
collecting any information (including race and gender), on applicants
for their nonmortgage credit products. The collection of these data must
be used by banks to measure their success in compliance with Regulation
B. Provided that a bank carefully follows the procedures specified in
Regulation B and uses the collected information only for self-testing
purposes, it will be protected from disclosure under the self-test
privilege. For additional information on this topic, please see OCC
Bulletin 2003-20, "Equal Credit Opportunity (Regulation B)."

##### 

##### Risk Mitigation through Government Programs

There are several federal and state programs that are designed to
increase lending by banks to small businesses, including MBEs. These
programs often provide a credit enhancement, such as guarantees, for
borrowers that do not meet standard credit or collateral requirements.
The credit enhancements enable banks to lend to MBEs with a higher risk
profile without compromising their risk selection criteria. Guaranteed
loans also transfer credit risk, resulting in lower loan loss
allocations for these loans. Additionally, a secondary market has been
established for guaranteed loans, providing banks that originate and
sell these loans with options to manage liquidity. Moreover, many of
these government programs have been streamlined to a point where they
can be considered low documentation programs. Some programs require only
a one-page application, and processing is expedited.

Recognizing the need to help immigrant business owners obtain financing
and to assist banks wishing to tap into emerging domestic markets, the
SBA permits participating lenders to provide guaranteed loans to MBEs
that are owned by persons who are not citizens of the United States.
Specific information on borrower eligibility is available from the
SBA.[^13]

Banks intending to become new lenders in these government programs
should take advantage of the extensive training opportunities available
from these agencies. These government programs have performance
requirements that banks must follow if they wish to preserve the agency
guaranty. Banks that obtain training from the agencies for their small
business loan and credit officers reduce their exposure to the risk that
future default claims will not be honored because they have failed to
meet the agencies' requirements. Banks can learn more about these
training opportunities by visiting the Web sites of these government
agencies or by contacting the OCC directly. Please see the final section
of this advisory letter for further information. Some of the more widely
known and used government sponsored loan programs are listed below.

####### *U.S. Small Business Administration Programs*

The SBA's 7(a) and 504 Programs are the primary programs banks have used
to penetrate the MBE market. Over the ten-year period from 1990 to 2000,
the dollar volume of 7(a) and 504 loans to MBEs grew from 12.9 percent
to 29.5 percent of the SBA's total.[^14] Recent SBA volume indicates a
38 percent increase in loans to MBEs between 2002 and 2003.[^15]

####### 

####### The SBA 7(a) Loan Guarantee Program. The SBA 7(a) program provides up to an 85 percent guaranty to a bank for loans up to \$150,000 and up to 75 percent for loans above \$150,000 up to a maximum SBA guaranty of \$1 million and maximum loan amount of \$2 million. Under the umbrella of the SBA's 7(a) program, there are various specialty products to meet both lender and borrower needs. Of special interest to banks might be the SBA*LowDoc* product, which uses a one-page application for loans up to \$150,000, and SBA*Express,* which permits banks to use their own documentation and procedures to approve loans up to \$250,000.

-   The SBA Community*Expres*s Program. As a subset of the 7(a) program
    referenced above, the Community*Express* program includes loan
    guarantees of up to 85 percent on loans up to \$250,000. The unique
    features of the Community*Express* program are that it targets low-
    and moderate-income geographies and women and MBEs. It also includes
    a requirement for pre- and post-loan technical assistance to be
    provided by independent third parties. The local SBA field office
    generally leaves the selection of a technical assistance provider to
    a bank subject to SBA final approval.

-   The SBA 504 Certified Development Company (CDC) Loan Program. The
    SBA's 504-CDC loan program provides subordinate financing needed by
    some MBEs. A certified development company is a nonprofit
    corporation established to work with lenders who make senior debt
    financing available to growing small businesses, including MBEs.
    Typically, a 504 project includes a loan secured by a senior lien
    from a bank covering up to 50 percent of the project cost, a
    subordinate 504 loan from the CDC (backed by a 100 percent
    SBA-guaranteed debenture) covering 40 percent of the cost, and the
    remaining 10 percent in equity from the borrower. Loans made under
    the SBA 504 program are typically used for the purchase of real
    estate or machinery and equipment for small business expansion or
    modernization.

##### *Contract Financing* 

Qualified enterprises can be certified under two programs administered
by the SBA for small disadvantaged businesses (SDBs). The SBA's 8(a)
Business Development Program and the Small Disadvantaged Business
Certification Program help small businesses become eligible for federal
contracts awarded under restricted competition to certified firms. While
the 8(a) Program offers a broad scope of assistance to socially and
economically disadvantaged firms, SDB certification strictly pertains to
benefits in federal procurement. Small businesses that are 8(a) firms
automatically qualify for SDB certification. Once they have been awarded
government contracts, many qualified enterprises need short-term
financing to bridge the time period between delivery of services or
products and receipt of payment. Two government programs that have
assisted banks in providing contract financing to qualified enterprises
are the following:

>  

-   SBA CAPLines --- a special 7(a) loan guaranty program designed to
    meet the short-term financing needs of all small businesses,
    including MBEs.

-   Department of Transportation Short-term Lending Program --- a
    short-term lending program (STLP) for MBEs through a network of
    banks. STLP provides revolving lines of credit to finance accounts
    receivable arising from transportation-related projects.

Many state and local governments have certification programs that are
similar to the SBA\'s 8(a) program.

*U.S. Department of Agriculture's Business and Industry (B&I) Loan
Guarantee Program*

The Business and Industry, or B&I program, involves the guarantee of a
direct loan from a bank to a public or private borrower, including MBEs,
who cannot obtain credit from other sources and is located in a rural
area. B&I program guarantees are available for up to 90 percent of the
loan amount with a maximum aggregate exposure to any one borrower of
\$10 million.

######## 

######## *Capital Access Programs* 

Capital Access Programs, or CAPs, are small business lending programs
available in 20 states and two cities. These programs establish a loan
loss reserve, funded jointly by the state, borrower, and lender that
insures against the risk of loss. CAPs allow lenders to make loans that
do not always meet conventional lending guidelines.

## 

## Investment Opportunities

To develop businesses of the size and scale required to have significant
economic impact, MBEs need access to equity capital, appropriately
priced to match the risk faced by investors. High-growth MBEs, defined
as firms that will employ nearly 100 additional workers within five
years, are candidates for venture capital investments. These high-growth
MBEs can create jobs, share wealth, improve communities, and enhance the
quality of life for those they employ. Likewise, smaller MBEs, perhaps
in the emerging company category, need patient capital, sometimes
provided in the form of mezzanine financing, which is often described as
debt with equity features.

Authority for national banks to provide equity capital directly or
indirectly to MBEs originates from two separate and distinct sources: 15
USC 681-682 and 12 USC 24(Eleventh).

##### *Small Business Investment Companies --- 15 USC 681-682*

National banks are permitted to invest in Small Business Investment
Companies (SBICs) under 15 USC 681-682. SBICs are privately owned and
managed companies licensed by the SBA. The primary benefit of becoming a
licensed SBIC is that once approved, an SBIC is eligible to receive a
2-to-1 public/private-funding match from the SBA on the required minimum
private capital, thereby leveraging the investor's initial equity
contribution. Funds raised by SBICs are then invested in firms that meet
the SBA's definition of small businesses or small enterprises. From
fiscal year 1994 through 2002, SBICs provided 8 percent of all venture
financing dollars, 64 percent of all venture seed-stage financing
dollars, and more than 62 percent of the total number of venture
financings to small businesses in the United States.[^16]

SBICs are a vehicle for banking organizations to make venture capital
investments in small businesses, including MBEs. Banking organizations
have made good use of their authority to invest in SBICs by forming and
capitalizing their own SBICs. Currently, there are more than 80 bank or
bank holding company-owned SBICs licensed by the SBA. One important
difference between bank-owned SBICs and all others is that bank-owned
SBICs do not normally participate in the SBA's 2-to-1 funding match (or
leverage) since banks have their own readily available source of funding
at a lower cost. National banks are permitted to invest up to 5 percent
of capital and surplus in SBICs.

Under SBA rules, national bank ownership of an SBIC that receives a
funding match is limited to 70 percent, while the remaining ownership
must include at least three investors unaffiliated with the bank or each
other. There are no ownership limits for banks that own SBICs that do
not receive leverage from the SBA. Additionally, a national bank that
controls one SBIC is generally limited by the SBA from owning more than
10 percent of a second SBIC without prior approval. SBICs are governed
by SBA regulations at 13 CFR part 107.

*Part 24 Authority --- 12 USC 24(Eleventh)*

National banks also have the express authority to make community and
economic development investments of up to 5 percent of a bank's capital
and surplus under 12 USC 24 (Eleventh) and the OCC's regulation at 12
CFR part 24, traditionally known as "part 24."[^17] An eligible
investment must primarily benefit low- and moderate-income individuals,
low- and moderate-income areas, or other areas targeted by a
governmental entity for redevelopment; or it must meet the definition of
a "qualified investment" under the CRA regulation, 12 CFR 25. Examples
of investments can include equity and debt financing for small
businesses, particularly those that support creating or retaining jobs
for low- and moderate-income persons. Part 24 investments meeting these
criteria may include the following structures:

##### Venture Capital Funds --- In an effort to make additional equity capital available to high-growth MBEs, some venture capital funds have specifically targeted their investments to MBEs. Their purpose here is two-fold: to generate attractive monetary returns and to promote the growth of MBEs. Research conducted for the National Association of Investment Companies (NAIC), a trade organization representing minority-focused venture capital firms, indicates that when minorities start high growth companies, their rates of return are comparable to all companies in this class. More importantly, this research also shows that investment funds targeted primarily at minority businesses perform at comparable levels to funds not specifically targeted to minority businesses.[^18] Banks have been a vital source of venture capital for MBEs by investing in minority-oriented venture capital funds, as well as by creating their own funds.

##### Mezzanine Funds --- Mezzanine financing, also known as gap financing or subordinated debt, can be used to fill a void between equity and senior debt that can exist in a MBE's capital structure. Mezzanine debt, sometimes called patient capital, is debt with some equity features. A bank or mezzanine fund may structure a typical loan as subordinated debt with a collateral position secondary to the bank's senior loan. It might be a term loan with higher risk-based pricing and with flexible amortization of principal. Privately managed, public-purpose mezzanine funds have found success partnering with banks that provide customer referrals and the senior debt and that participate in the mezzanine financing. The typical market for mezzanine funds is middle-market companies and high-growth MBEs that require capital to grow.

##### 

##### New Markets Tax Credits --- The New Markets Tax Credit Program (NMTC), administered by the CDFI Fund of the U.S. Department of the Treasury under 26 USC 45D, raises capital from investors who desire tax credits in return for their investments, similar to the well-established Federal Low Income Housing Tax Credit program. The CDFI Fund certifies Community Development Entities (CDEs), which may use capital raised from investors to make direct equity investments in, or loans to, businesses located in low-income communities. Some banks have established their own CDEs for the purpose of generating a new source of funds to invest in or lend to MBEs operating in low-income communities.

######### Other Bank Investments --- Banks have taken advantage of a number of additional investment vehicles to channel funds into the minority small business community. These investment activities include:

-   Community Development Financial Institutions --- The Community
    Development Financial Institutions Fund (CDFI Fund) administers
    programs that provide financial assistance which supports markets
    that have been underserved by traditional financial institutions.
    The CDFI Fund's activities leverage private-sector investments from
    banks, foundations, and other funding sources. The CDFI Fund
    indicates that many of its CDFIs' business loans are made to MBEs.

-   Minority-Owned Banks --- Minority-owned banks often provide
    essential financing to MBEs in their communities, and investments or
    deposits in minority-owned banks support the capital base of these
    institutions.

-   Community Development Venture Capital (CDVC) Funds --- CDVC funds
    invest in small businesses operating in communities in need of
    expanded employment opportunities for entry-level workers.

-   Community Development Corporations and Revolving Loan Funds ---
    Banks may capitalize, provide lines of credit, or make
    equity-equivalent investments in bank-owned or local or regional
    community development corporations or loan funds established for the
    purpose of providing credit to small businesses, including MBEs.

-   Microenterprise Loan Funds --- Nonprofit corporations usually
    administer local and regional funds established for the purpose of
    fostering microenterprises. Bank investments in these funds are
    often structured as equity equivalents or grants. The SBA has
    established a micro-loan program, which provides very small loans to
    start-up, newly established, or growing small businesses through
    nonprofit community-based lenders. These loans do not exceed
    \$35,000, with an average size of \$10,500.

##### Community Reinvestment Act 

Many of the credit and investment opportunities identified in this
advisory letter may be eligible for CRA consideration. Banks should
consult the CRA regulation, 12 CFR 25, and the Interagency Questions and
Answers Regarding Community Reinvestment at 66 Fed. Reg. 36,620 (July
12, 2001) for further information.

##### FURTHER INFORMATION 

##### 

For more information about the various types of initiatives described
here, please access the Small Business Resource Guide on the Community
Affairs page of the OCC Web site,

[www.occ.treas.gov/cdd/commfoc.htm](http://www.occ.treas.gov/cdd/commfoc.htm).
Additionally, bankers may want to speak with their bank's
examiner-in-charge or assistant deputy comptroller for guidance on this
line of business. District community affairs officers in the OCC's
district offices also are available to provide consultations and answer
questions.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Anna Alvarez Boyd

Deputy Comptroller for Community Affairs

Notes:

[^1]: Alicia M. Robb, *Entrepreneurial Performance by Women and
    Minorities: The Case of New Firms*, Journal of Developmental
    Enterprise, December 2002

[^2]: Minority Business Development Agency, *Accelerating Job Creation
    and Economic Productivity -- Expanding Financing Opportunities for
    Minority Businesses*, September 2003.

[^3]: Alicia M. Robb, *Entrepreneurial Performance by Women and
    Minorities: The Case of New Firms*, Journal of Developmental
    Enterprise, December 2002.

[^4]: Timothy Bates, *Race, Self-Employment, and Upward Mobility: An
    Illusive American Dream*, Johns Hopkins University Press, 1997.

[^5]: David G. Blanchflower, et al., *Discrimination In The Small
    Business Credit Market*, National Bureau of Economic Research,
    December 1998.

[^6]: The Surveys of Minority- and Women-Owned Business Enterprises
    (SMOBE/SWOBE) provide basic economic data on businesses owned by
    women, Blacks, persons of Hispanic or Latin American ancestry, and
    persons of Asian, Pacific Islander, American Indian, or Alaska
    Native descent. These surveys are part of the economic census
    program, which the U.S. Census Bureau is required to conduct every
    five years. Data from the 1997 survey were published in Fall 2000.
    As of this date, data from the 2002 survey have not been published.

[^7]: Milken Institute and the Minority Business Development Agency,
    *The Minority Business Challenge*, September 2000.

[^8]: "Small Businesses Are a Big Deal, but Banks Are Giving Short
    Shrift," The *American Banker*, February 7, 2003.

[^9]: Minority Business Development Agency, *Accelerating Job Creation
    and Economic Productivity -- Expanding Financing Opportunities for
    Minority Businesses*, September 2003.

[^10]: Office of the Comptroller of the Currency, *Examination Guidance
    on Credit Scoring Models*, OCC Bulletin 97-24, May 20, 1997.

[^11]: Ibid.

[^12]: Ibid.

[^13]: U.S. Small Business Administration, *Partial Alien Ownership
    Requirements and Verification of Status for 7(a) & 504 Loans,*
    Policy Notice 5000-851, February 11, 2003.

[^14]: U.S. Small Business Administration Office of Advocacy,
    *Minorities in Business, 2001*, November 2001.

[^15]: U.S. Small Business Administration, News Release 03-72, October
    10, 2003.

[^16]: U.S. Small Business Administration, *SBIC Program FY 2002 Special
    Report.*

[^17]: National banks may invest up to 10 percent of capital and surplus
    with OCC approval.

[^18]: Timothy Bates and William Bradford, *Minority and Venture
    Capital: A New Wave of American Business*, The Kaufman Foundation,
    July 2003.