Top Small Business Loans for Minorities

Find the top business loans for minorities and apply online with this free guide.
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Where to Find Small Business Loans for Minorities

Minority entrepreneurs can obtain business loans from a variety of sources, including the U.S. Small Business Administration, banks, online lenders, and nonprofits.

There are currently more than 8 million minority-owned businesses in the U.S., yet those businesses lag behind the average small business in terms of revenue and access to capital. 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.

Here’s a list of the best small business loans for minorities:

  1. SBA 7(a) Loan ProgramBest for owners of established businesses who want to grow their companies.
  2. SBA Community Advantage Loans: Best for businesses operating in underserved markets and communities.
  3. SBA Microloan ProgramBest for new business owners that need $50,000 or less in funding.
  4. SBA 8(a) Business Development Program: Best for minority-owned businesses that compete for federal contracts.
  5. Nonprofit Loans: Best for low-to-moderate income business owners.
  6. Union Bank Diversity Lending: Best for minority business owners with large capital needs.
  7. Business Center for New AmericansBest for immigrant-owned businesses.
  8. USDA Business Loans: Best for minority-owned businesses in rural areas.

Read on for more details about these small business loans for minorities, along with alternative sources of funding for minority-owned small businesses.


The 8 Best Small Business Loans for Minorities

Here are the eight best small business loans for minorities:

1. SBA 7(a) Loans

SBA 7(a) loans are guaranteed by the U.S. Small Business Administration (SBA), which is a federal entity created to foster small business growth. SBA 7(a) loans are not exclusively for minorities, and any entrepreneur is free to 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 option for large investments in business. The maximum repayment terms typically range from 10 to 25 years. The best part is that the interest rates on 7(a) loans are some of the lowest around, allowing minority business owners to invest more profits in growth rather than paying off debt.

Apply for an SBA 7(a) Loan

2. SBA Community Advantage Loans

Also run by the SBA, the Community Advantage Loan Program works to meet the financial needs of small businesses in underserved markets. This program encourages local, mission-based lenders such as nonprofit organizations to make loans of up to $250,000 to minorities, women, veterans, and other underserved business owners.

By guaranteeing up to 85% of the loan amount, the SBA attempts to help small business owners who might not qualify for traditional financing, so this is a great option if you are looking minority small business loans. You have to demonstrate creditworthiness and your ability to pay back the loan, but a lack of collateral or balance sheet assets won’t prevent you from qualifying. To get started, contact your local SBA district office.

3. SBA Microloan Program

Minority small business owners seeking loans of $50,000 or less should investigate the SBA microloan program. Although this program is open to any eligible small business owner, SBA microloans can be a particularly good starting point for minorities.

These small business loans provide up to $50,000 to help small business owners start and expand. The SBA makes these loans through third party nonprofit lenders. Many of these local nonprofits exist to help minorities and other underserved entrepreneurs. They offer management and technical assistance to small business owners along with the loan. To find local microlenders, contact your local SBA District Office.

4. SBA 8(a) Business Development Program

The SBA 8(a) Business Development Program is technically not a loan, but a certification program that helps minority-owned businesses get access to federal contracts. In order to even the playing field for small businesses owned by socially and economically disadvantaged people, the government limits competition for some federal contracts to businesses that participate in the 8(a) Business Development program.

In order to qualify for this program, your business must be 51% owned by someone from a socially and economically disadvantaged background. Minorities are presumed 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 requirements, you can apply to get certified online, after which you can start competing for contract set-asides. You can also get assistance to free business mentorship and training through the 8(a) program.

5. Nonprofit Loans

Several nonprofit lenders make loans to small businesses. For example, international lending organization Accion has a U.S. loan program targeting low- to moderate-income business owners who have difficulty accessing capital through traditional channels, making it a great option for loans for a minority small business. While not minority-specific, Accion’s U.S. branches offer loans from $300 up to $1 million in all 50 states.

Another nonprofit lender to check out is Kiva. This organization, built on a social lending model, offers up to $10,000 in no-interest financing for eligible 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’re looking for minority-specific business funding, Union Bank is another good option to consider. They provide business loans and business lines of credit exclusively for minority-owned businesses.

These products have less stringent lending standards than traditional Union Bank small business loans and are designated for minority small business owners who want loans 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) gives business loans of $500 to $50,000 to minority business owners in the United States. The BCNA specifically works with immigrants, refugees, women, and other minority entrepreneurs. These are short-term loans that must be paid back between six months and three years. They offer low, fixed interest rates.

This organization helps finance minority entrepreneurs who were turned down from traditional financing options for any number of reasons. The loan the borrower requested might have been too small, the bank wouldn’t lend to a startup, or the borrower’s credit score was too low. If you can demonstrate an ability to repay the loan, you’re likely to qualify for a loan from BCNA. Because of the looser qualification requirements, this program is also a great startup loan for minorities.

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8. USDA Business Loans

As a final option for minority business loans, consider apply 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 criterion is that your business should be located in a rural area, defined as a town with fewer than 50,000 inhabitants. USDA business loans are open to any eligible rural business, but they are a great 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 extend up to a maximum of $25 million and can be put towards a variety of business needs, including working capital, the financing of real estate, business expansion, and debt refinancing.These are a good option for business owners who need large amounts of capital. USDA loans come with low interest rates, long terms, and require 10% to 20% down.


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. Grant seeking requires creativity, determination, and patience, but they’re one of the best ways to finance a business. 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 National Minority Supplier Development Council (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. The NMSDC has defined who qualifies as a “minority” for purposes of MBE certification. As a certified MBE, you have more opportunities to compete for federal contracts, minority business grants, and minority business loans.

Here’s a list of the best small business grants for minorities:

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1. Rural Business Development Grants

Rural Business Development Grants (RBDG) extend grant funding to support training for business development, in order to stimulate the economies of rural communities. The RBDG program  doesn’t provide grants directly to small business owners, but federally recognized Indian tribes are eligible to receive grant funding.

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2. First Nations Development Institute Grant

The First Nations Development Institute gives up to six grants of $30,000 each to Native American institutions supporting native arts, society, and culture. However, to qualify, you must already have programs in place supporting this goal. First Nations has granted more than 1,600 grants totaling more than $34.9 million to Native American projects and organizations in 40 states and D.C.

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3. Office of Minority Health Grants

The U.S. Department of Health and Human Services’ Office of Minority Health runs grant programs to support agencies and organizations that aim to eliminate health disparities among racial and ethnic minorities. Although most grantees are public sector organizations or universities, private scientific and research businesses area also eligible to apply.

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4. Minority Business Development Agency

The U.S. Department of Commerce operates Minority Business Development Agency (MBDA) Business Centers nationwide that help minority small business owners start and grow their companies. The centers are located in areas that have the largest concentration of minority populations and the largest number of minority businesses. Their advisors can refer you to local sources that provide small business loans and grants for minorities.

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5. National Minority Supplier Development Council

The National Minority Supplier Development Council (NMSDC) helps minority-owned businesses get minority business enterprise (MBE) certification. As a certified MBE, you have more opportunities to compete for federal contracts, minority business grants, and minority business loans. NMSDC will also connect you to contracting opportunities with their network of corporate partners.

 

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6. Small Business Development Centers

Your local SBA District Office or Small Business Development Center (SBDC) can help you find and work with potential lenders who have experience providing small business loans for minorities. They’ll also set you up with business training and courses to help you get a leg up over the competition.

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7. Operation HOPE

Designed for entrepreneurs from low-income communities, Operation HOPE offers workshops, counseling, templates and guides, and connections to networks of lenders (and the SBA).

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8. U.S. Minority Chamber of Commerce

The Minority Chamber of Commerce is a National Business Association that helps minority-run small business owners educate themselves, network with like-minded individuals, and connect with specialized suppliers. Your state or city should also have a local chapter.

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9. SCORE

The Service Corps of Retired Executives (SCORE) mentors small business owners for free, and provides more specialized workshops and seminar classes for an additional fee. They have special programs for minority small business owners as well, so make sure you explore everything they offer nearby.

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10. National Minority Business Council

Different from the National Minority Supplier Development Council we mentioned above, the National Minority Business Council (NMBC) also offers contracting opportunities, equity funding networking, free resources, and minority-owned small business news updates to members.


Online Business Loans for Minorities

There are some fantastic loan and grant programs available to minority business owners. Some of these options can be a challenge to score due to high demand and limited capital resources. So, if you don’t qualify for these options, try checking to see what you qualify for with online small business loans available to all small business owners.

You might find the perfect loan for your business from one of the many lenders working in the small business financing space.

Here are the lenders we recommend:

1. Kabbage

Kabbage is a great lender to work with if you’re looking for funding while dealing with bad credit. Kabbage offers credit lines of up to $250,000 for almost all business purposes. And the best part? Kabbage doesn’t have a minimum personal credit score required, making them an accessible lender for less-qualified minority entrepreneurs

Read more about Kabbage.

2. OnDeck

OnDeck is yet another alternative lender that offers business loans on a wider credit spectrum. OnDeck offers both short-term loans and business lines of credit for borrowers with a minimum personal credit score of 600. You could qualify for up to $500,000 in financing with a quick, online application. OnDeck is a great option for minority business owners who need capital for just about any business need.

Read more about OnDeck.

3. Fundation

Fundation offers medium-term loans and business lines of credit. If you’re looking for up to $500,000 in capital, Fundation is a good option. Qualified borrowers will need to have at least a 660 credit score, making this slightly harder to qualify for than OnDeck or Kabbage. However, Fundation also offers more affordable financing, with interest rates starting at 8%. You can use the financing for most business needs.

Read more about Fundation.


The Bottom Line

The average minority-owned business in the United States operated with much less capital, even after controlling for factors influencing financing amounts, like credit score.

Fortunately, there are federal, state, local and private loan programs tailored to address some of the challenges that minority small business owners face. The list above should help you get started in your search for capital.

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