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There are over 11 million minority-owned businesses in the United States, and minority business owners play a vital role in growing the U.S. economy. Despite the economic importance of minority-owned businesses, Asian, Hispanic, African American, Native American and other minority small business owners experience a disproportionate number of barriers in access to business capital. This impacts the growth of minority-owned businesses and makes it more difficult for minority owners to meet their business capital needs.
While access to financing is far from equal, there are loans and financing options specifically for minority-owned businesses. There are also financing options for all businesses that may be more accessible to minority entrepreneurs who have been denied by traditional lenders.
Here’s what you need to know about small business loans for minority business owners.
Who Qualifies for Minority Small Business Loans?
According to the SBA, Mminority small business loans are for those of the following ethnic origins:
- Asian Pacific
- Asian Subcontinent
- Native Alaskan
- Native American
- Native Hawaiian.
Types of SBA Loans for Minorities
The U.S. Small Business Administration (SBA) is a great starting point for funding your minority-owned business. The SBA has specific programs, like the SBA 8(a) Business Development Program, that are designed to support and grow minority-owned businesses. The SBA also has general funding programs, like the SBA 7(a) loan program, that are available to minority-owned businesses each year.
If you’re looking for short term financing, or if you’re looking to launch your business, a microloan guaranteed by the SBA may be a great option for you. SBA microloans offer up to $50,000 in business capital to qualifying owners and typically offer a 6 year repayment plan. While SBA microloans are technically available to all business owners, these funds are distributed through various nonprofits around the United States, many of which are geared toward supporting underprivileged businesses.
Your local branch of the Small Business Administration should be able to provide you with a list of relevant microlending organizations that may be able to finance your initiative. Consult each of these lenders before pursuing a financing option in order to gain an idea of which organizations and loan options are best aligned to your business.
SBA Community Advantage Loans
For more extensive financing needs, you may want to apply for SBA Community Advantage Loans. Community advantage loans seek to help businesses in “underserved markets”, meaning low-moderate income areas, “rural” regions, or veteran-owned business ventures. Community Advantage loans can cover from $50,000-$250,000 in financing for your operation, and come as term loans with fixed repayment plans and either fixed or variable interest rates. Like other SBA loan programs, Community Advantage Loans are secured by the SBA and issued through independent lending institutions that pledge to offer at least 60% of their funding to “underserved” owners.
Your local SBA office should be able to provide a list of lenders and loans that your business and market may qualify for. Consult an SBA agent to determine which options are best suited for your operation.
SBA 7(a) Loans
SBA 7(a) loans are the most popular financing option offered by the Small Business Administration. 7(a) loans are available to all small business owners seeking up to $5 million in financing, and come with long term repayment plans and favorably low interest rates. For this reason, receiving a 7(a) loan can be a difficult and competitive process. However, in recent years the SBA has sought to increase the proportion of these loans offered to minority and underprivileged owners.
According to the SBA, 32% of 7(a) loans are provided to minority-owned businesses, with that figure increasing in the last couple years. SBA Community Advantage Loans fit under the 7(a) umbrella, and may still be your best option if you’re a minority owner seeking financing with as little competition as possible.
Small Business Administration 8(a) Business Development Program
The SBA 8(a) Business Development Program is designed to give minority and underprivileged business owners a better chance at receiving federal contracts and funding. Unlike 7(a) loans, the SBA Business Development Program does not offer financing to business, rather it offers an in-road to receiving SBA loans and other federal aid for owners that may otherwise have difficulty receiving funding. To qualify for the program, your business needs to be majority-owned by someone who is socially or economically disadvantaged, has a net worth of less than $250,000, and is involved in the day to day management of your business.
You can apply for certification for the 8(a) program through the SBA, freeing your business up for a less competitive field for federal funding as well as allowing you to receive expert consultation on federal and state contracting from an SBA representative.
Other Business Loans for Minority-Owned Businesses
The SBA is not the only lender for minority-owned businesses, and it may not be the best source of financing for your operation. A number of lending and financing options seek to benefit minority owned businesses. Each lender and nonprofit has different criteria for lending and borrowing, meaning that each financing option presents different advantages and disadvantages based on the state of your specific operation. Before deciding on a financing option for your small business, take care to research the various options available to underprivileged business owners.
Alternative Lending or Online Loans
There is a rising number of lenders who aim to make business financing more accessible by offering loans via virtual applications and digital banking. These loans are a great option if you are looking for capital quickly or are concerned about meeting eligibility requirements for an SBA loan.
Alternative loans are less dependent on qualifying standards like your personal credit score and often have more flexible repayment terms. Where SBA-backed loans can take several months to be approved and distributed, many alternative lenders offer accelerated approval and funding schedules that free up funding with a quick turnaround time. Some popular online business loans include working capital term loans and merchant cash advances.
When applying for a loan online, make sure that you verify that the lender is licensed to originate loans in your business location and check for certification by the BBB to ensure that you are working with a reliable lender.
Loans from Nonprofit Organizations
Many nonprofits provide loans or even small business grants that align with their mission and values. Look for local nonprofits that are dedicated to leveling the playing field for minorities and you may find that a local organization has the right loan for your business. Nonprofits often give away business grants, and local grants are less competitive than national grant programs with hundreds or thousands of applicants.
A global nonprofit called Accion is committed to providing more equal financial access through microfinance and other lending programs. If there are not local or regional nonprofits with funding for your business, you may be able to apply for small business funding through Accion.
Union Bank Business Diversity Lending Program
Union Bank has a Diversity Lending Program that specifically allocates funding dollars for women, veteran and minority business owners. This program essentially directs Union Bank’s regular loan and financing products specifically to minority entrepreneurs. Unlike other banks and lenders that hold specific criteria for lending that benefit established and successful business owners, Union Bank is dedicated to equalizing lending to serve underprivileged and underrepresented communities.
Business Center for New Americans Loans
If you recently immigrated to the United States, the Business Center for New Americans offers small business loans, including microloans and business lines of credit. The Business Center for New Americans also provides essential business training and advising to business owners who recently immigrated to the United States and may need additional guidance and funding to get their operation off the ground.
Minority Business Development Agency
The Minority Business Development Agency (MBDA) connects minority business owners with capital through private lenders and investors. In addition, the MBDA connects business owners with markets, supply chains and contracts that help minority entrepreneurs grow and flourish. While the MBDA isn’t a lender, the organization helps to facilitate over $1.8 trillion in revenue from minority-owned businesses, and can connect you to the right financing options for your business.
Minority Business Enterprise (MBE) Certification: Why and How to Apply – check and update information
To qualify for an MBE certification, you need to:
- Have a for-profit business located in the U.S.
- 51% owned and operated by a minority group, including Black business owners, Hispanic business owners, Native American business owners, Asian Pacific business owners (from Pacific Islands, China, Taiwan, and elsewhere) and Subcontinent Asian business owners ( from India, Pakistan, and elsewhere)
- Legal residents of the U.S.
How to Get a Minority Business Loan
Start by formulating a solid business plan, including financial projections. Build a credit history and prepare documentation, such as tax returns, business licenses, and financial statements.
Identify lenders that specialize in minority business loans, like Minority Business Development Agency (MBDA), Small Business Administration (SBA), and community development financial institutions.
Frequently Asked Questions About Business Loans for Minorities
The SBA offers programs specifically for minority-owned businesses. Community Development Financial Institutions (CDFIs) also provide funding options.
Online lenders and traditional banks with diversity initiatives are other potential sources. Lastly, non-profit organizations like Accion and the National Minority Supplier Development Council offer loan programs for minority businesses.
SBA’s 8(a) Business Development program provides financial assistance. Microloan programs offered by non-profit lenders and CDFIs are also options.
Additionally, business lines of credit, equipment financing, and invoice factoring may be available from banks and online lenders.
Grants, such as those from the MBDA and the National Association for the Self-Employed, can provide funding.
Business development programs like SCORE mentorship or SBA’s Women’s Business Centers offer support. Additionally, state and local government initiatives, as well as non-profit organizations, provide networking, training, and guidance to minority entrepreneurs.