The best small business loans for minorities

Small business loans for minorities can be a saving grace for small business owners with a historically marginalized background. Learn about the best small business loans for minorities and how they can grow a business in this article.

Introduction

For minority small business owners, a lot goes into running a successful business. From daily operational expenses to growing staff, having right-sized working capital is an important piece to staying competitive in an ever-evolving marketplace. The good news is, small business loans for minorities exist, but knowing where and how to apply is key.

Minority owned businesses occupy an important place in the US economy  Lending largely to the expanse of the overall economic influence and innovation infrastructure, minority business owners are responsible for a huge surge in economic progress and prosperity. However, despite positive economic trends and profitability, minority business owners are less likely to receive the working capital they need for growth and longevity.

For minorities seeking small business loans, the normal challenges of financing can be compounded by lending biases, language barriers, and geographical positioning in communities. Because of this, minority business owners are less likely to receive small business financing from traditional lenders. And when they do, they are often faced with higher rates and lower dollar amounts. Thankfully, there are small business loans for minorities that are specifically designed to make working capital more accessible for minority owned businesses.

What are small business loans for minorities?

Small business loans for minorities are lending options created with the minority business owner in mind – making working capital more accessible for establishments operated by underrepresented groups. When pursuing minority business loans, it’s important to know that there isn’t just one minority lending product on the market. From SBA to non-profit and alternative lending options, there are a variety of small business financing options available to you to help successfully run your business.

While you may find funding through traditional banks and programs, alternative funders and government agencies have gone the extra mile to offer lending products specifically for the underserved communities.

Who qualifies for small business loans for minorities?

Although specific requirements vary based on lender, small business loans for minorities are intended for Black, Hispanic, Asian-Pacific, Asian-Indian Subcontinent, Native American, or Alaskan Native business owners who own and operate the majority share of their company. While some lenders might require a minority owned business certification, others will simply require that the business owner belongs to a minority group to qualify.

How small business loans for minorities differ from regular business loans

Similar to other small business financing products, loans for minorities will require applicants to submit a loan application with personal credit and financial history, a business plan, and legal documents such as business licensing. However, the biggest difference between minority business loans and regular loans is that loans for minorities focus less on credit score and business plans and more on the potential of the company as a whole.

Minority business financing options

SBA loans

  • SBA 7(a) Loans: The Small Business Administration is a government-funded entity that provides government-backed loans through partners who can distribute funds when capital is needed. Most 7(a) term loans are repaid with monthly payments of principal and interest and can be used for establishing a new business or assisting an acquisition.
  • SBA 8(a) Business Development Program: The SBA 8(a) Business Development program helps minority-owned businesses obtain access to federal contracts and funding. To qualify, you must own 51% or more of your company and make an averaged gross income of $250,000 or less within the last three years. If you meet these requirements, you can apply online and start winning contracts for your business.
  • SBA Community Advantage Loans: The Community Advantage Loan program works hard to serve disadvantaged business owners operating in disadvantaged areas. This program encourages local, mission-based lenders to offer loans up to $250,000 to aid minority owned companies. This option is ideal for those who may not qualify for traditional financing – getting you the funds you need, even if you don’t have collateral or balance sheets.
  • SBA microloan: An SBA microloan provides direct loans to small business owners of $50,000 or less designed to help veterans, women, minority-owned, or low-income entrepreneurs secure the funding they need. These loans have a friendly application and approval process and are designed specifically with the minority business owner in mind.

Nonprofit loans

    • Accion Opportunity Fund: Accion Opportunity fund is a financial support system created for minority business leaders that typically have a harder time securing capital from traditional lending facilities. In addition to small business financing, Accion also provides small business owners with educational resources, coaching, and support networks offered both in English and in Spanish.
    • Kiva: Kiva is an online crowdfunding and microloan non-profit organization that allows users to choose an entrepreneur in a disadvantaged area and make a loan for them. This is a more personal approach for community members to help step in and help companies in need of small business financing.
    • Business Consortium Fund Loan: The Business Consortium Fund Loan provides lending and counseling services exclusively for National Minority Supplier Development Council (NMSDC) certified businesses. If you’re an NMSDC certified business looking to secure working capital, the Business Consortium Fund provides a myriad of lending products that can help you achieve your business goals.

Alternative minority loan options

    • Accompany Capital: Accompany Capital provides loans and programs to immigrants, refugees, and women entrepreneurs. They offer targeted tools and training as well as networking support groups to help minority run companies get the support they need throughout their entrepreneurial journey.
    • USDA Business Loans: The U.S. Department of Agriculture guarantees business loans for small businesses, companies, nonprofits and other organizations located in rural communities. The USDA is a great source for long-term, affordable small business financing specifically designed to promote small businesses located in rural communities.
    • State and local loans: State and local financial relief programs for small businesses can provide economic assistance to help cover company related expenditures and operating expenses. These loans are typically less competitive and are affordable funding options for minority owned businesses.
    • Minority grants: Both public and private organizations offer grants for minority entrepreneurs. Since you do not need to return the funding you receive, grant applications will typically not require you to include bank statements or credit history.

 

Small business loans and other types of financing for minorities from alternative funders

  • Term Loans

    A term loan is a flexible lending option that provides your company with access to capital with a lump sum payment. Payments are typically daily, weekly or monthly depending on the funder. Short term loans provide you with the working capital you need, and the ability to pay it off quickly. Long term loans allow you to potentially borrow more, while paying back the loan over a longer term.

  • Merchant Cash Advance

    A merchant cash advance is not a loan but a purchase and sales transaction that gives small business access to capital in a quick and convenient fashion. A merchant cash advance (or MCA) gives businesses access to funds in return for a portion of the business’ future revenue receivables at a discounted price. To be approved for an MCA, there are criteria to be met like being able to accept credit card payments or have other receivables.

  • Line of Credit

    A line of credit is a flexible funding option that can be accessed by small business owners as a kind of revolving capital that works similarly to a credit card. Your business will be approved for a set amount of credit which then allows you to draw on that amount when needed, only paying fees on the balance that you owe.

  • Invoice Factoring

    Invoice factoring is an advance where a small business sells its invoices at a discounted price for an immediate access to working capital. It can take up to 90 days for your business to receive access to invoice factoring capital, so this option is best suited for those who aren’t looking to cover in a short-term situation.

  • Asset based loan

    An asset-based loan allows small business to access working capital through a loan secured by assets that the business has. This allows the lender to collateralize with asset(s) from a business borrower, leading to potentially lower rates. Here, the more liquid the business asset is, typically the less risky the loan may be considered for better term options.

Summary

As a minority small business owner looking to scale your business or simply cover seasonal expenses, small business loans for minorities, along with other financing options, gives you the ability to come up with the working capital you need without the added hurdles. Understanding what financial lending products are available to you can help guide you to the right minority business loan that fits you and your business’ needs.

If you have any questions about alternative lending options or would like to speak with a business advisor about small business loans for minorities or other financing options, please call one of our small business experts at Rapid Finance today: (877)-252-0827.