Small Business Loans for Minorities: Top 10 Options
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If you operate a black-owned business or any other minority-owned business and need a loan, there are financing opportunities available.
While many institutions don’t specifically label financing options as minority business loans, some programs are aimed at entrepreneurs in socially or economically disadvantaged groups. Other programs give applications from minority-owned businesses special consideration.
Let’s take a look at what minority business loans are available, how to qualify for them and the additional resources that can connect your business with the funding and guidance it needs to flourish.
Smaller business loans perfect for minority startups
SBA Community Advantage Loans
Provides credit, as well as management and technical assistance, to for-profit businesses in underserved communities
Targeted towards minority business owners in underserved communities
A network of lenders aiming to help minority business owners
Both secured and unsecured loans for small businesses
BCF Direct Lending Program
Loans up to $1.125 million with 7-year terms
BCF Loan Participation Program
Similar structure to SBA 504 loans, but can be used to finance outstanding invoices
Indian Loan Guarantee Program
Facilitates lending to American and Alaskan individual natives and tribes that might not otherwise qualify for traditional financing.
According to a Fed Small Business survey, minorities are 10% more likely to apply for business financing but are 19% less likely to be approved than their non-minority counterparts. For minority business owners who don’t apply, 26% cite a lack of credit and a perceived stigma against them as reasons for why they don’t seek funding.
Qualifying for Minority Business Loans
Small business loans for minorities are designed explicitly for racial and ethnic minorities, as well as socially or economically disadvantaged individuals. Although some financing options target a specific minority group, most provide small business loans for entrepreneurs in the following racial/ethnic groups:
While some of these loans have unique requirements for borrowers, many programs have similar qualifications. In general, certification as a Minority Business Enterprise (MBE) or Disadvantaged Business Enterprise (DBE) is enough to pre-qualify for minority business loans.
Is Your Business MBE Certified?
Many organizations will require you to be a certified Minority Business Enterprise (MBE) or Disadvantaged Business Enterprise (DBE) to be eligible for minority business loans, grants or other resources. The main provider of these certifications is the National Minority Supplier Development Council (NMSDC). Their MBE program qualifies you as a DBE and is recognized nationwide by suppliers, both public and private. To qualify, your business must:
Be at least 51% owned by 1 or more members of an approved minority group
Have day-to-day operations and decision-making handled by minority owner(s)
Be a for-profit business
Be located in the territorial U.S.
Small Business Loans for Minorities: 6 Sources
Today, you can find loans for minority business owners from multiple organizations, including the federal government.
1. SBA Loans for Minority Business Owners
Through the Small Business Administration’s (SBA) loan programs, the SBA guarantees a percentage of the funding for small businesses. SBA loans are good options for minorities who don’t qualify for traditional bank loans, making them an excellent choice for minority owners facing financial challenges.
While there aren’t any restrictions regarding who can apply for SBA microloans, this program is particularly beneficial for women, veterans, economically disadvantaged or minority business owners who have recently launched their ventures.
Microloans are issued by third-party lenders, which in most cases, are nonprofit, community-based organizations. While the maximum funding amount available to applicants is $50,000, the average loan is more than $14,000. You can expect an interest rate between 6%-9%. Microloans can be used for working capital, inventory, supplies or purchasing machinery, among other purposes, but they cannot be used for real estate purchases or debt refinancing. If you’ve been seeking minority business loans or grants for your startup, microloans can help entrepreneurs who might have limited financing options when opening a new company.
The program encourages local lenders, nonprofits and even mission-focused organizations to issue SBA 7(a) small business loans for female minorities, veterans and other members of underserved communities.
What’s considered an underserved community? The SBA typically considers inner-city and rural areas and any low-to-moderate-income community “underserved.” If your business has at least 50% of its employees residing in one of these areas, you could qualify for the Community Advantage Loan Program.
The SBA guarantees up to 85% of the amount issued (maximum of $250,000), making this an excellent option for you if you’ve had trouble qualifying for traditional term loans. Term length maximums are 10 years for working capital and equipment and 25 years for commercial real estate. Interest rates are comparable to 7(a) program loans, ranging from 5.5%-8%.
Paycheck Protection Program Loans for Minority-Owned Companies
Minority-owned businesses in the U.S. have been especially hit hard by the COVID-19-caused economic downturn. The first CARES Act, which passed in March 2020, came under heavy criticism for not providing enough assistance for minority-owned firms and other small businesses in great financial need. The second round of legislation that passed in late December 2020 aims to fix those problems by providing more Paycheck Protection Program funding for minority-owned and economically disadvantaged businesses. The government approved $15 billion in funding for first-time PPP loans and $25 billion for second loans to be set aside for minority small business owners and other small business owners — with a 10-person staff or smaller — in low-income areas. Applicants could be approved for PPP loans up to $250,000. In addition, about $30 billion is earmarked for lenders that serve minority communities, including small community banks and credit unions as well as community development financial institutions (CDFI) and SBA Microloan intermediaries.
Emergency Grants for Businesses in Low-Income Areas
An EIDL provides working capital to help minority-owned businesses meet their operating expenses, such as payroll, insurance, rent and utilities. Small business owners who applied for EIDL grants under the first CARES Act can also seek this grant funding. If your business received less than $10,000 in the first round of funding, or if your business applied in 2020 and couldn’t receive financing because the fund was depleted, you are eligible to apply for the revived grant program. Grants provide up to $10,000 in funding for businesses in a low-income community with a staff no larger than 300 employees. Minority and other business owners must also show a 30% revenue loss, year-over-year, to qualify for this grant.
2. Accion Network
The Accion Network’s goal is to distribute small business loans for minorities, and other funding, across the United States. More than 60% of Accion Network’s borrowers are part of minority groups. This nonprofit organization offers affordable, flexible funding options to businesses across industries. You can apply for microloans, and qualified borrowers can receive more substantial amounts. Accion offers loans for everything you need, from everyday working capital to renovations. They’re an excellent for startups, as well.
3. Union Bank
Union Bank’s Business Diversity Lending Program offers up to $2.5 million in loans for minority business owners. The program is designed to help small minority businesses finance projects large and small. You must be in business for at least 2 years and have annual sales of less than $20 million to qualify.
Union Bank offers both secured and unsecured loan options with fixed or variable rates. Your creditworthiness will determine your financing amount and terms.
The BCF will often directly lend to businesses. They offer term loans and lines of credit, ranging from a minimum of $75,000 to $500,000, although loans up to $1.125 million will be considered on a case-by-case basis. Loans reach maturity in 7 years, making these a good loan option for minority owners who need a medium-sized term loan.
BCF Loan Guaranty/Loan Participation Program
Like SBA loan programs, the BCF guarantees part of your funding if you have trouble acquiring financing from traditional lenders. Their involvement, dubbed the Loan Guaranty/Loan Participation Program, provides a credit enhancement by covering a portion of the funding. Consider BCF loans for minority business owners if you need to finance equipment or invoices, or need a quick boost in working capital.
5. Indian Loan Guarantee Program
The Indian Loan Guarantee Program (ILGP) helps American Indian native and Alaskan native people and tribes obtain funding from various lenders, excluding credit unions, by providing guarantees or insurance for minority business loans. These guarantees can help native business owners secure financing at reasonable rates, which might otherwise be unattainable.
Be an enrolled member of an American Indian or Alaskan native tribe or group
Be an American Indian or Alaskan native group or tribe
An American Indian or Alaskan native tribe or group must have 51% ownership of the financed business
The financed project should benefit a reservation or tribal service area’s economy
The borrower must invest 20% equity in the project
ILGP-secured funding can be used for operating capital, lines of credit, construction and equipment purchases, among other projects.
6. State and Local Programs
Helping business owners obtain financing to grow their companies is one way state and local governments can ensure their respective economies thrive.
There are myriad programs available, and the easiest way to find one for your business is to search the web for (your state’s name) and “minority business loans.”
One such program is the Pennsylvania Minority Business Development Authority (PMBDA). The PMDBA provides low-interest minority business loans that can be used for different purposes, including working capital, building construction and renovation projects. The authority will finance up to 90% of approved projects.
Another program is New York’s Accompany Capital, which provides small business loans, credit-building loans and microloans to minority business owners.
Non-Minority Loan Programs to Consider
The following loan options aren’t specifically geared toward minority business owner borrowers. However, these financing packages are helpful if you haven’t qualified for traditional funding.
Standard SBA 7(a) Loans
SBA 7(a) loans offer up to $5 million for borrowers, meaning you can use them for large or small projects. The SBA guarantees up to 85% of your loan, reducing the risk for lenders and opening access to affordable long-term financing to previously disqualified candidates. Interest rates depend on your creditworthiness but are generally not far from what banks offer. Terms range from 7-25 years, depending on the amount you borrow and the intended use. Requirements vary by lender. For example, to qualify for an SBA 7(A) loan through Fast Capital 360, you’ll need to have:
At least $50,000 in annual revenue
At least 2 years in business
A credit score of 650+
Although they’re flexible, it takes a few weeks to a month to receive approval, and even longer to get the funding.
SBA Express Loans
With many SBA loans, you’ll have to wait several weeks before learning whether your application will be approved. In contrast, SBA Express Loans can have capital in your bank account in as little as 30 days. However, in exchange for the expedited process, the interest rates are slightly higher, and you’ll have a lower maximum borrowing potential. You can borrow up to $350,000 over a 5- to a 10-year term. The SBA guarantees up to 50% of these deals, making them riskier for lenders, which can impact your terms and chances of approval.
SBA 504/CDC Loans
The SBA 504 loan program is excellent if you need to purchase fixed assets such as equipment, commercial trucks and real estate. These SBA loans are partially funded by Certified Development Companies (CDC), nonprofit partners of the SBA that aim to help build America’s small business infrastructure. Here’s the funding breakdown:
Bank loan: 50% (or more)
CDC loan: 40%
Borrower’s down payment: 10% (or more)
The CDC-backed portion of the loan is capped at $5 million. There is no cap for the bank-serviced part of the loan. In general, interest is not much higher than what banks offer, ranging from 2.2% – 2.4%, and terms go up to 25 years for the CDC portion of the loan.
Small Business Loans for Minorities with Bad Credit
You can obtain minority business loans even if you have bad credit or scant credit history.
Banks and alternative lenders have options that can connect you with the funding you need for your business.
Short-term loans, which are abbreviated versions of conventional term loans, are a more accessible path to financing minority business loans for applicants with less-than-stellar credit. Like a conventional term loan, you’ll finance a project with a lump sum of money. You’ll then repay the principal, with interest, according to an agreed-upon schedule. While some term loans can be repaid over decades, many short-term loans reach maturity in 18 months or fewer.
Small business loans for minorities with bad credit are seen as riskier, so lenders require shorter, more frequent repayment schedules — sometimes with weekly or daily payments — and higher interest rates. The maximum funding amount can also be smaller than what you would get with a conventional term loan. For example, with Fast Capital 360’s lending partners, borrowers can be approved for $500,000.
Business Line of Credit
While this isn’t technically a minority business loan, this financing package is an option for applicants with bad credit. With a business line of credit, a lender approves you for a funding amount that you can draw from to finance your business needs. You repay and pay interest on only the capital you’ve used. Once what you borrowed from your business line of credit is repaid, you can again withdraw funding.
Related ArticlesHere’s more info from our experts to help your small business thrive.
Applying for Minority Business Loans
After choosing a lender, you’ll submit paperwork and financial documents to apply forsmall business loans for minorities. While minority business loans vary regarding their required documents, you’ll generally need to gather the following before applying:
3 years of:
Business and personal tax documents
Profit and loss statements
Recent bank statements
Voided business check
Some lenders will do more due diligence than others, including possible site visits. Check with the organization to learn more about its process. Obtaining a minority business loan could take days, weeks or months depending on your lender.
Other Resources for Minority Business Owners Seeking Loans
Outside of funding, minority-owned small businesses can face more everyday challenges that require some assistance. There are many groups that you can turn to for help securing your small business’s financial and strategic future.
SBA 8(a) Program
Unlike the 7(a) and 504 loan programs, the SBA 8(a) program specifically assists socioeconomically disadvantaged small businesses, including those owned by minorities. Instead of directly giving money to your business, 8(a) certified businesses get increased exposure and opportunities to win lucrative government contracts. Sometimes, your business may be the only company capable of fulfilling the contract. By default, you’re awarded a multi-million dollar contract that could change your future. Participation in the program is limited to 9 years and includes access to management training and the Mentor-Protege program. You’ll need to become 8(a) certified to enter the program. The SBA 8(a) program has specific guidelines determining your eligibility. To qualify, you must:
Not have an average adjusted gross income over $250,000 for 3 years
Have less than $4 million in personal assets
National Minority Supplier Diversity Council
Membership with the NMSDC can provide you with multiple avenues to help your business grow. Through their corporate partners, including global giants like Apple, Boeing, SAP SE and IBM, you can compete for contracts with companies seeking to work with diverse B2B partners. Some of their partners can also help you find funding for your business. To become a member — and to be eligible for resources and benefits from many other governmental and nonprofit entities — the NMSDC also provides certification for your business as a Minority Business Executive. Their certification is recognized across industries and fulfills prerequisites for all of the top minority business loans and grant options.
Minority Business Development Agency (MBDA)
The MBDA works to help minority-owned businesses find the capital, contracts and markets they need to succeed. They focus on serving people and building economies of communities with large minority populations. MBDA offers technical, management and marketing training to build a better strategy for your business’s future.
If you need minority business loans or other funding, they’ll help you find lenders. Their network of business centers is available to all minority business owners.
Minority Chamber of Commerce (MCC)
MCC members can connect and utilize those connections to build partnerships and learn from each other’s successes. The MCC also publicizes its members through the chamber’s platforms and helps increase funding access for minority businesses, assisting business owners in crafting a business plan and following up with lenders and investors.
The Service Corps of Retired Executives (SCORE) offers you the opportunity to learn how to run your company from successful entrepreneurs and former executives. Mentors with SCORE guide you through all levels of business ownership. They can help you navigate the startup phase, expansion and even teach you how to obtain small business loans for minorities. The nonprofit also holds conferences and workshops that, for a small cost, offer you training as well as an opportunity to network with mentors and fellow entrepreneurs.
There are numerous grant opportunities for minority business owners to obtain funding. For-profit businesses and nonprofit organizations offer grants, as do federal and state governments. Unlike with minority business loans, grant recipients don’t have to repay their awarded money. The funding amounts and application requirements vary; some grants also offer mentorship and publicity opportunities.