Minority Business Loans
A Comprehensive Guide To Business Loans for Minorities
Last Updated: May 29, 2019
Table of Contents
- What’s the Purpose of Minority Business Loans?
- Available Funding Programs
- Grants for Minority Business Owners
- How Do I Qualify?
- Apply for a Minority Business Loan
- Is Your Business Minority Business Enterprise Certified?
Minority small business loans provide the opportunity for minority business owners to secure financing in order to grow their businesses. Minority-owned businesses can use loans from the SBA, via SBA microloans, private microlenders, or non-profit companies. While there is not one specific type of loan known as a minority business loan, there are certain advantages and benefits minorities receive based on the program they apply for.
While there is not one specific type of loan known as a minority business loan, there are certain advantages and benefits minorities receive based on the program they apply for.
What’s the Purpose of Minority Business Loans?
According to the United States Small Business Economic Profile for 2018, there are 8 million minority-owned businesses across the United States. Unfortunately, minority-run businesses can find the process of securing a business loan to be a bit more challenging compared to the average small business owner.
Why do minorities struggle to gain business financing?
Minority business owners often fall short of qualifying for a small business loan because of bad credit, limited assets, and limited working capital.
According to the 2016 Small Business Credit Survey, almost 30% of minority-owned businesses were denied or partially funded. 44% didn’t even try to apply, feeling there was a stigma held against minority business owners.
What’s being done to change that?
While many minority-operated businesses were hit hard by the Great Recession, the SBA, specifically, has stepped up in recent years. In 2016, the SBA guaranteed over $5 billion in small business loans in California. Two percent of these funds were loaned to African American business owners, while 13% were provided to Latino business owners.
Just like any small business loan, securing a small business loan for a minority owner may take time to find and, later, qualify for. Fortunately, lenders have taken note of these trends and done more to help minority business owners secure the small business loans they need to succeed.
Available Funding Programs
Much like Small Business Loans for Women or Business Loans for Veterans, there is not one specific type of minority business loan. There are, however, plenty of lenders and programs that are available to minority business owners.
Let’s start with the SBA, a government agency offering multiple programs to minorities looking for a small business loan.
SBA Loans for Minority Business Owners
This SBA loan is specifically built for socially and economically disadvantaged individuals owning at least 51% of a business. This allows minority business owners to gain access to the economic mainstream of American society that, historically, they’ve not had. Participation in the program is divided into two phases over nine years: a four-year developmental stage and a five-year transition stage.
Though they are not specifically designed for minority business owners, an SBA microloan is a great tool for owners looking to receive $50,000 or less. These microloans are made by third-party lenders, which in most cases is usually a nonprofit. While the maximum funding amount available to applicants is $50,000, the average loan program is $13,000.
SBA Community Advantage Program
Designed to serve small business owners who may not qualify for traditional financing. The Community Advantage Program encourages smaller local lenders, nonprofits and even mission-focused organizations to make SBA 7(a) loans in underserved areas. The SBA guarantees up to 85% of the amount (the maximum being $250,000), making this an excellent option for minority small business loans.
Outside of the SBA, there are still plenty of small business loan options available for minority business owners.
Accion U.S. Network
This nonprofit lender focuses on making up to $300,000 available to businesses run by minorities. Accion’s programs target low to moderate income businesses who have had trouble accessing working capital, previously.
A lending company that offers loans across the lending spectrum. Union Bank offers small business loans, even for minority business owners, specifically. Their programs provide competitive interest rates with flexible underwriting. To qualify for one of their minority business loans, applicants are required to have been in business for 2 years or more, own at least 51% of the company, not exceed $20 million in revenue and ask for less than $2.5 million.
National African American Small Business Loan Fund
Provided by The Valley Economic Development Center in partnership with JP Morgan Chase. Specifically, this fund provides financing to minority business owners in low-income communities across Los Angeles, Chicago, and New York.
Business Consortium Fund Direct Loan Program
The BCNA works directly with women, refugees, immigrants and other minorities who own their own business. This program works with minority entrepreneurs who have the ability to repay a loan but have been disqualified for a traditional loan due to factors like a low credit score or the requested amount to borrow was too low. Term loans and line-of-credits are offered between $75,000-$500,000 with interest rates starting at 8.25%.
Grants for Minority Business Owners
One of the clear advantages grants hold over small business loans is the fact that grants are not required to be paid back. The tradeoff, however, is that grants carry more restrictions on how their funds can be used. Even with their limitations, grants are still some of the best ways to fund a business.
Let’s review some of the best options for minority-owned business:
Grant Programs to Benefit Minority Health Communities
For minority-run health-related businesses, this grant allows you to provide healthcare information or awareness, enabling your business to serve other minorities in your community.
Improving Minority Health Grant
The USDA has created a grant to fund minority-run nonprofits focused on improving the health of people in their communities. Other eligible organizations include native tribes, health agencies, and faith-based organizations with a healthcare lean.
Rural Business Opportunity Grants
A great resource for minorities looking to secure a minority small business loan, the RBOG program provides support and training for business development. Grants are given up to $100,000 to stimulate the economy in rural communities.
Water & Waste Disposal Loan & Grant Program
This grant, though not specifically created for minority business owners, is targeted toward minority-owned small business, as well as federally-recognized Native American tribes. Applicable for businesses operating or looking to operate a water or waste disposal organizations within recognized tribal lands.
Stands for Partnerships for Opportunity, Workforce, and Economic Revitalization Initiative. These partnerships help communities that have been severely impacted by the shifts occurring in the power industry. The federal government awards block grants to both state and local institutions, allowing power contractors the opportunity to secure new jobs or even second-hand grants.
If your business has a strong digital footprint, this is a grant worth applying for with, given there are three total packages worth $50,000.
First Nations Development Institute Grant
This grant is supported by The Native Arts Capacity Building Initiative, aiding Native American artists in Minnesota, Wisconsin, North Dakota, and South Dakota. This program provides up to 6 grants of $30,000, each.
Rural Business Enterprise Grants
The RBEG program makes funds available to small business in order to improve rural development. This grant gives greater priority to grant applications between $10,000 – $50,000 and can be used to fund real estate development, infrastructure development, purchase equipment, as well as working capital for startup businesses.
Entrepreneurial Assistance Program
Education and support program for minority business owners in New York. They help and guide you through the loan application process. Other business support includes how to refine a business concept and plan, establish management principles, implement marketing strategies.
How Do I Qualify?
A minority business loan is specifically designed for minorities and socially and/or economically disadvantaged individuals.
For lending purposes, minorities are classified as:
- American Indian
- Pacific Islander
- Alaskan Native
To secure a minority business loan, applicants need to have a FICO credit score of at least 650. While many of these loans and grants have their own, unique requirements many of these programs have similar qualifications.
For example, to qualify for one of the SBA loans we reviewed earlier, you will need to have:
- at least $50,000 in annual revenue
- been in business for 2+ years
- a credit score of 650+
With qualifications this steep, minority business owners may have a greater chance to secure the funds they need with an online lender. These online funders are better equipped to support minority business owners of all types of financial backgrounds.
To qualify with an online lender, businesses will need to have:
- An annual revenue of at least $120,000 (or a monthly revenue of $10,000)
- Been in operation for at least 6 months
- A credit score of at least 500
Apply for a Minority Business Loan
When applying for a minority business loan, the best way to secure the funds you need as quickly as possible is with an online business funder.
Fast Capital 360’s application, for example, won’t impact your credit score and takes only minutes to complete. To expedite the process, we ask only for essential business details which allows us to generate an approval decision within hours. All of your data is kept secure thanks to SSL encryption and the latest in bank-grade security.
While each minority business loan and grant require different documents, it’s most likely that you will need the following criteria:
- Outstanding invoices
- Recent bank statements
- Balance Sheet
- Voided Business Check
- Income Statements
Is Your Business Minority Business Enterprise Certified?
In addition to being financially qualified to receive a minority business loan, minority business owners need to also be certified as either an MBE (Minority Business Enterprise) or DBE (Disadvantaged Business Enterprise).
The requirements for each certification are very similar. Let’s review together.
To be certified as either a Minority Business Enterprise or Disadvantaged Business Enterprise, organizations must:
- Be a for-profit business, located in the United States, independently owned and operated by one or more disadvantaged individuals.
- Have 51% of the business is owned and controlled by one or more U.S. Citizens, or a legal resident (green card), who are socially and economically disadvantaged. This means that an individual is either female and/or is Black, Hispanic, Native American, Asian Pacific, or Subcontinent Asian. To be an economically disadvantaged person means they are an individual who does not have a personal net worth equal to or greater than $1.32 million
- To be categorized as a minority business individual must hold the highest, executive office, and be responsible for managing the firm’s day-to-day business. This individual must also have technical experience in the business’s primary revenue generating activities.
If you still have questions for the best alternatives to a minority business loan or any other funding product available, one of Fast Capital 360’s Business Advisors are here to help. Click here to get in touch, or call (800) 735-6107.