About minority business loans

Business loans for minorities are a common way underserved minority business owners can get the financing they need to run and grow their companies. Minority groups have been historically overlooked and accessing credit and capital for their business is harder for them than their non- minority competitors. This is due to many factors such as common industries operated in, financial hurdles after immigration, lender bias and stereotypes, and more.

There are business loans for minorities, but those loans are likely titled for a broader category of entrepreneur. More commonly there are grants and award type funding dedicated toward fostering specific projects founded by minorities. When searching for business loans for minorities, the success of your search can depend on how you look for the financing. After finding loans that fit your minority owned business, you can also look into other financing options that fit a diverse range of cash flows and industries.

How Do I Get Business Loans For Minorities?

The question of how and where to get business loans for minorities is more easily answered today than it was ten or twenty years ago with the opportunities online funding now allows. Business loans can be researched and applied for from the comfort of your chair. You can use the resources below to find the best minority business loan for your business.

Start with the US Small Business Administration’s various loan programs:
– SBA 7(a) Loans: This is the primary financing program offered by the SBA. Rates, terms and amounts vary per loan, but recipients can get a loan for up to $5 million and up to 10 years. Some programs within the SBA 7(a) have specific allocations for what they can be spent on, but there are many programs within this loan type. Other advantages are offered to veterans to promote business loans for minority groups.

– SBA 8(a) Business Development Program: The SBA is affiliated with the government and aims to award at least five percent of all federal contracting dollars to small disadvantaged businesses each year. By loaning working capital to socially and economically disadvantaged people or entities, the government is able to level the playing field, so to speak. There are several qualifications to be met for these business loans for minorities, such as the business must be owned by someone whose average adjusted gross income for three years is $250,000 or less.

– SBA Community Advantage Loans: Minority business owners often operate in under served industries and markets. For small business owners who don’t qualify for traditional financing, the Community Advantage Loan Program encourages local, mission-based lenders such as nonprofit organizations to receive loans of up to $250,000.

– SBA Microloans: While this option is not specifically designated for minority business owners seeking minority business loans, microloans max out at $50,000 increments, making them easier to qualify for and can be more than enough working capital for very small businesses.

Another type of microloan is from the Accion U.S. Network:
– Accion Microloans: While not minority-specific, Accion’s U.S. member organizations offer loan options ranging from $200 up to $300,000 in all 50 states. This can be beneficial for minority owned businesses who either have low credit, have small cash flow, or don’t need a large amount to put toward growth.

Check with your bank:
– Local Banks, Credit Unions, Big Banks: Most banks will have business loan options. Check their individual offerings to see if they have specific business loans for minorities that you can qualify for! As an example, Union Bank offers a minority business loan specifically designed to help specific ethnicities and races through access to funding.

Why Is It Hard For Minorities To Get Loans?

After doing some research into loans, you might notice that while there are many loan providers, the statistics show that minority groups are less likely to be approved for loans and therefore less likely to even bother applying. If approved, minority business owners typically receive lower amounts and higher interest rates. There’s a few reasons bank do this:
One reason is lower net worth. A 2016 study found that white business owners start their businesses with an average of $106,720 in working capital compared to African-American- owned businesses, which are started with an average of just $35,205. Having lower net worth means less assets which to a bank means less collateral to go after to get money back if the loan payment defaults.

Searching for uncollateralized loans and funding options are a good way to circumvent this. Location is also a big factor when funding a business. This has less to do with race and more to do with the poorer communities that minority owned businesses are typically found in. Poor communities still need small business for their economies, but it’s hard to run a business with no financial assistance.

Another reason is credit score. Banks place a large emphasis on having a strong credit score which is a disadvantage for minority business owners who statistically have credit scores of around 700, lower than the national average. Thankfully, other types of lending and funding have emerged that look at more than just credit. These “full picture” models have allowed minority business owners to access capital by evaluating the overall business rather than just the credit score.

Overall, business loans for minorities aim to level the playing field and make socioeconomic backgrounds less of a hurdle when starting and running a small business and contributing to the US economy.

How Does A Business Loan For Minorities Work?

The general concept of a business loan for minorities and non-minorities is the same: Small business loans give business owners access to capital to invest in their business. A lender will give a business owner money, which the business owner then must pay back with additional interest over a set period of time.

What gets tricky is the part about paying back more than you borrowed. For some business owners new to borrowing money, making more on returns can be difficult to manage. An important part of borrowing working capital is making sure it’s put towards an investment that will grow. An example is getting funded to purchase or lease an aircraft fleet. A business would need a large amount of funds to do so, but the profit made off of the operating aircraft is enough to cover the loan plus interest. Similarly, college loans enable students to get higher paying careers and are an investment in bigger salaries and career opportunities for the long term. Other investments that offer returns are marketing, additional locations, construction for expansion, stockpiling inventory and purchasing more equipment to serve more and bigger clients.
If you’re unsure about having enough to pay back a loan plus interest, talk to a representative. The bank will not want to overleverage you because if you default, they don’t get paid at all. If the rates are too high or the term is too short, it might be worth it to walk away and wait for a better opportunity that suits your cash flow.

Specific Minority Business Loans

There are general minority business loans and then there are also business loans for specific minority groups. If you belong to one of the following groups, there are loans out there specifically for your minority status. Beyond what’s listed, do some research and see what you find!
– Native American Loans – There are loan options for Native American individuals or tribes who wish to mine on their lands. There are also grants available at this link, meaning funding is given with no need to payback the amount.

– African American Loans – P Morgan Chase and the Valley Economic Development Centers (VEDC) joined together to create NASBLF, an organization which serves minority- owned small businesses in low- or medium-income communities in New York, Los Angeles, and Chicago. In addition to providing access to capital, NASBLF also offers financial consulting and technical help.

– Women Owned Business – Through the SBA, the Office of Women’s Business Ownership helps women entrepreneurs by offering programs on business training, counseling, federal contracts, and access to credit and capital.

– Business Center for New Americans – The Business Center for New Americans gives minority business loans of $5,000 to $50,000 specifically to minority business owners in the United States. The BCNA specifically works with immigrants, refugees, women, and other minority entrepreneurs. Minority entrepreneurs are able to get funding this way despite being
turned down by traditional loans for a variety of reasons.

There are many more business loans for minorities out there, just do some research on your specific group and see what you can qualify for!

Other Options
There are more ways to fund your minority owned business besides just through business loans for minorities. An alternative option might be a better fit for your cash flow needs.

– Line of credit
Think of a line of credit like a credit card, except with bigger amounts. A business line of credit can provide revolving credit for your business to use. A funder gives you a set amount to spend and you only spend what you need, meaning you only pay interest on what you use, nothing more. This is great for businesses who have fluctuating cash flow needs and want more term flexibility than what a loan can offer.

– Business credit card
If a line of credit seems like too much for your small business, you can get a business credit card. This still provides working capital to help with growth or coasting over gaps. As long as you pay off what you spend, fees and interest will be minimal.

– Alternative funding
Within the merchant cash advance sector of finance there are different types of funding such as debt consolidation, credit card splits or standard funding for the purchase of future receivables. Alternative funding has higher rates and shorter terms, but has more relaxed qualifications allowing for business owners rejected by banks to gain access to working capital.

– Grants
Grants do not require any money to be paid back and are awarded for use towards a specificproject or as a reward for a niche achievement. While many companies would love this “freemoney, they are very competitive to apply to and typically are not large amounts.

What I Need To Qualify For A Minority Business Loan

Every lender will have their own “box” as they call it or set of requirements they want their loan recipients to fit into. Loans are often associated with banks that are affected by government regulation, and bank requirements have become increasingly strict after the Great Recession of 2008. In general, banks loans will require 700+ credit, strong revenue minimum one year in business but ideally two or more, collateral, and even personal documents to supplement business documents. Read online about the loan requirements to save yourself time filling out applications or a credit score check that results in a lower score.