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A Black Entrepreneur in Banking Gives Others a Break
United Bank of Philadelphia founder Emma Chappell talks about community lending

Giving struggling minority entrepreneurs that crucial chance -- a loan -- has been a central theme of banker Emma C. Chappell's career for the better part of three decades.

Founder, chairman, and chief executive officer of United Bank of Philadelphia, Chappell knows the challenges. She started United in 1992 with $6 million in assets after state regulators insisted the $3 million statutory requirement wasn't enough. Her core investors? Three thousand black Philadelphians who bought $500 blocks of shares. The first black-owned bank in Philadelphia in 35 years, it took five years to get it off the ground.

Today, United has $122 million in assets and is a leader in lending to local minority businesses. It has programs for those who don't qualify for financing from most banks and teaches aspiring entrepreneurs business skills.

Community lending is a hard business. In 1998, the bank's net income fell 94%, to $10,000, because a $1 million-plus loan ran into trouble. The situation turned around, says Chappell. She projects 1999 net income at $361,000.

Chappell recently spoke with Business Week Online's Jeremy Quittner. An edited transcript of their conversation follows.

Q: What are the chief obstacles confronting black entrepreneurs seeking financing?
The biggest obstacle is a mindset that people have against African Americans having the ability to be entrepreneurs. This mindset does not allow them to help African Americans who have not had equal access to capital to get it. It can destroy.

Q: What other specific challenges?
[Black entrepreneurs] don't have sufficient equity capital. If you only have $20,000 as a capital base for your business, then a bank does not want to put in more than $20,000 or $40,000 because that is what they can get back. We have seen people with wonderful businesses, but they don't have sufficient equity, and somewhere along the way -- because they have had to borrow from Peter to pay Paul -- they hurt their credit.

Q: In one of our conversations, you mentioned a loan fund the bank is setting up for small businesses. Can you tell me about that?
When the U.S. Treasury established Community Development Financial Institutions programs, I...applied for certification [and] created a nonprofit entity called Philadelphia United. It provides wonderful education and training programs for small businesses. Most important, we are creating a low-interest loan fund. It will be a $2 million fund. The money will come from First Union Bank, the national CDFI fund, the city of Philadelphia. The rest will come from the bank. We [will] lend low-interest money from this pool of funds that would allow [entrepreneurs] to get money from another bank because now they have some equity and a base to their financials.

Q: Are these very small loans that we are talking about?
They are just above micro-loans -- $20,000 and up.

Q: What are other obstacles black entrepreneurs face?
Lack of management training. We have classes on management here. We...create their business plans for them, and we help them manage their businesses. They may have a great business idea and make a lot of money -- we have found that those people who come to our classes typically could run a fine business -- but they do not have the management skills that are required today to run a business.

Q: How specifically will you look beyond the surface for minority entrepreneurs, the way a typical bank won't?
As a traditional banker, I know what the parameters should be for us to approve, and then I say to myself, how do we mitigate the risk?... Typically it is to get someone else help guarantee the program, guarantee the loan, or demonstrate that they will work with the borrower to make their business successful. Most times, it is the [Small Business Administration]. I [also] look at character. Very often I go to church with [borrowers], or I am a member of a club with them, or a sorority. You get to know people.

Q: I am sure sometimes you need to make some really hard decisions. After all, you have a responsibility to make money for your shareholders.
I am always having to balance the fact that I have to make this bank successful for our shareholders. A lot of the people who invested in this bank -- their return is knowing the bank has created 80 jobs directly and something like 4,000 to 5,000 jobs indirectly.

Q: What percentage of the loans you make is SBA-guaranteed?
On the commercial side, I would say about 75%. And that is why we are creating this loan fund, because there are instances when we would like to make [non-SBA guaranteed] loans.

Q: What are the hardest decisions that you have to make?
We have to turn down a lot of loans, but we try to make sure that the people understand why...and they can reverse it if they do A, B, C, and D.

Q: In the past few years, we have watched affirmative action worn away piecemeal. Do you think antipathy toward affirmative action has manifested itself in lending?
I do. People see that in small business, African Americans and other minorities have an opportunity to make real money, so there are those who would not be pleased if the African-American community really gets the opportunity to make good money. I am sad to say this.

Q: We are in the middle of a brand-new technology economy. Are black entrepreneurs tapping into the same rich opportunities that white entrepreneurs have?
I don't think they have tapped into the technology market as much as they should. There is a whole lot of money available for technology businesses. [But] usually, African Americans are the last ones to get the opportunity to be exposed to these types of businesses. If they are exposed, they are exposed on such a low level, they very seldom get to the point where they are in management positions in technology.

Q: Any final words of advice to entrepreneurs who are black, white, or any kind?
I believe that entrepreneurialism is going to be the wave of the future... So often, minorities have such difficulties getting jobs. But if we had more minority entrepreneurs, then they would create more jobs in their own community.



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