Business Loans For Minorities: Minority business loans can be a crucial source of funding to help entrepreneurs from historically underserved communities launch a new business or scale an existing business.
Small business startup loans for minorities can be a critical funding source to help entrepreneurs from historically underserved communities start a new business or grow an existing business.
Currently, there are more than 8 million minority-owned businesses in the United States. Yet, those businesses struggle more than an average small business in terms of revenue and access to capital.
If those minority business owners are approved, they typically pay higher interest rates on lower loan amounts than do non-minorities.
What Qualifies as a Minority Business?
Many minority business loans and grants are dependent upon specific qualifications or thorough business plans. With National funding, this isn’t an issue. As an alternative lender, we’re happy to look out for underserved small businesses and support them as they grow.
From racial minorities to small business loans for women, when it comes to special qualifications or applications, you are already set. A business is typically considered to be minority-owned if it is at least 51% controlled and owned by people of particular ethnicities.
For instance, to be considered a minority-owned business in New York, business owners must be Black, Hispanic, Asian-Pacific, Asian-Indian Subcontinent, Native American, or Alaskan Native.
1. SBA 7(a) Loans
SBA 7(a) loans are guaranteed by the U.S. Small Business Administration (SBA), which is a federal entity formed to foster small business growth. SBA 7(a) loans are not particularly for minorities, and any entrepreneur can easily apply for these loans through participating lenders.
However, nearly one-third of SBA 7(a) loans go to minority applicants.
You can use an SBA 7(a) loan to qualify for as much as $5 million in capital, making this a good choice for significant investments in the business. The maximum repayment terms typically vary from 10 to 25 years.
The best part is that the interest rates on 7(a) loans are some of the lowest around, providing minority business owners to invest more profits in growth rather than paying off debt.
2. SBA Community Advantage Loans
The SBA Community Advantage Loan Program serves to meet the financial requirements of small businesses in underserved markets. This program helps local, mission-based lenders such as nonprofit organizations to obtain loans of up to $250,000 to minorities, women, veterans, and other underserved business owners.
By ensuring up to 85% of the loan amount, the SBA strives to help small business owners who might not fit for traditional financing, so this is an excellent option if you are looking for minority small business loans.
You have to prove creditworthiness and your capacity to pay back the loan, but a lack of collateral or balance sheet assets will not stop you from qualifying.
3. SBA Microloan Program
Minority small business owners trying to obtain $50,000 or less loans should investigate the SBA microloan program. Although this program is open to any eligible small business owner, SBA microloans can be a perfect starting point for minorities.
These small business loans contribute up to $50,000 to support small business owners start and grow. The SBA makes these loans through third-party nonprofit lenders. Many of these local nonprofits exist to support minorities and other underserved entrepreneurs.
They give management and technical help to small business owners along with the loan.
4. SBA 8(a) Business Development Program
The SBA 8(a) Business Development Program is technically not a loan but a certification program that encourages minority-owned businesses to access federal contracts.
In order to even the playing field for small businesses owned by socially and economically disadvantaged people, the government restricts competition for some federal contracts for companies that participate in the 8(a) Business Development program.
In order to pass for this program, your business must be 51% owned by someone from a socially and economically disadvantaged background. Minorities are considered to be socially disadvantaged under federal law.
On the economic side, the owner’s personal net worth and average gross income for the last three years must be $250,000 or less, and their assets must be $4 million or less.
If you meet these basic qualifications, you can apply to get certified online, after which you can begin competing for contract set-asides. You can also get help to free business mentorship and training through the 8(a) program.
5. Nonprofit Loans
Several nonprofit lenders offer loans to small businesses. For instance, the international lending organization Accion has a U.S. loan program targeting low- to moderate-income business owners who have a problem accessing capital through traditional channels, making it an excellent option for loans for a minority small business.
Accion’s U.S. branches offer loans from $300 up to $1 million in all 50 states while not minority-specific.
Another nonprofit lender to look at is Kiva. This organization, built on a social lending model, allows up to $10,000 in no-interest financing for qualified small business owners.
First, you must get a small network of your family and friends to lend money to you, after which you can pitch your business idea to Kiva’s network of 1.6 million lenders to get additional financing.
6. Union Bank Business Diversity Lending Program
If you are searching for minority-specific business funding, Union Bank is another good choice to consider. They give business loans and business lines of credit only for minority-owned businesses.
These products have less harsh lending standards than traditional Union Bank small business loans and are chosen for minority small business owners who want to get a loan of up to $2.5 million. Loan products come with fixed or variable interest rates, with up terms up to 25 years.
7. Business Center for New Americans
The Business Center for New Americans (BCNA) provides business loans of $500 to $50,000 to minority business owners in the United States. The BCNA works explicitly with immigrants, refugees, women, and other minority entrepreneurs.
These are short-term loans that must be paid back between six months to three years. They allow low, fixed-interest rates.
This organization encourages finance minority entrepreneurs who were rejected from traditional financing options for any number of reasons. The loan the borrower requested might have been too small, the bank would not lend to a startup, or the borrower’s credit score was too low.
If you can show the capacity to repay the loan, you are likely to fit for a loan from BCNA. Because of the looser eligibility requirements, this program is also an excellent startup loan for minorities.
8. USDA Business Loans
As a final alternative for minority business loans, consider applying to the U.S. Department of Agriculture (USDA) Business and Industry Loan Guarantee Program. The USDA guarantees these loans, which local banks and direct lenders make to small businesses.
The main qualification rule is that your business should be located in a rural area, described as a town with fewer than 50,000 inhabitants. USDA business loans are open to any qualified rural business, but they are an excellent choice for minority entrepreneurs, given that minorities in rural communities are more likely to live in substandard housing and are more likely to be poor.
USDA loans increase up to a maximum of $25 million. They can be put towards various business requirements, including working capital, real estate financing, business expansion, and debt refinancing.
These are good options for business owners who need large amounts of capital. USDA loans come with low-interest rates, long terms, and require 10% to 20% down.
9. Business Consortium Fund Loan
Business Consortium Fund Loans are loans reserved specifically for minority-owned businesses that have not secured financing through other channels. Loans are certified by the U.S. Department of the Treasury and can range from $500 to $50,000.
Interest rates are capped at 3% above the prime rate, and loan repayment terms can be as long as seven years.
To be qualified for a Business Consortium Fund Loan, you must certify your business with the National Minority Supplier Development Council (NMSDC) and have had a vendor or supplier relationship with an NMSDC national or regional corporate member.
Online Business Loans for Minorities
As you can notice, there are some great loan programs available to minority business owners. However, some of these alternates can be a hurdle to score due to high demand and limited capital resources.
So, if you don’t qualify for any of the options mentioned above, try checking to see what you are eligible for with online small business loans available to all small business owners.
Loans for Minority Business Owners
Banks typically offer the lowest-cost business loans, and some — such as Union Bank and Native American Bank — specifically work with minorities. But traditionally, minorities have struggled to get approved for bank small-business loans.
If you’re a minority business owner, you may instead want to consider:
Online loans. Alternative online business loan lenders tend to have looser eligibility requirements than traditional banks and may focus more on criteria like your cash flow than your credit. Loan amounts range from about $1,000 to $5 million. Minority applicants have a better chance of getting approved with online lenders than banks, according to the Federal Reserve, but your loan will likely cost more.
SBA Community Advantage loans. The U.S. Small Business Administration backs many types of SBA loans, which banks and other lenders issue. The Community Advantage program is for businesses located in underserved communities that need $250,000 or less. The SBA works with local, mission-based lenders to provide the financing. Use the SBA Lender Match tool to find loan providers near you.
Microloans. The SBA offers microloans of up to $50,000 through nonprofit organizations. Its partners include The Opportunity Fund, which says 86% of its borrowers are minority business owners, and Accion, which draws more than 60% of its borrowers from minority communities. You can find providers in your state on the SBA website. Contact your local SBA district office for assistance.
Community development financial institutions. CDFIs are banks, credit unions, and other institutions that provide financial access, including loans, to minorities and other economically disadvantaged communities. For example, The National Minority Supplier Development Council Business Consortium Fund is a CDFI that provides minority business loans from $100,000 to $750,000. You can find a CDFI in your state with this tool.
Small Business Grants and Resources for Minorities
Beyond small business loans for minorities, there are also many small business grants that focus on minority-owned businesses. Unlike loans, grants are interest-free and don’t need to be paid back.
That’s like free money to grow your company. Before applying for grants, loans, or other resources, be sure to apply for minority business enterprise (MBE) certification through the NMSDC.
To qualify as an MBE, you must have a for-profit business that is at least 51% owned, operated, capitalized, and controlled by a member of a minority group.