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:
Read on for more details about these small business loans for minorities, along with alternative sources of funding for minority-owned small businesses.
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.
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.
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.
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.
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.
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.
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.
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.
Business Consortium Fund Loans are loans reserved specifically for minority-owned businesses that haven’t been able to secure 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 eligible 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.
As you can see, there are some fantastic loan programs available to minority business owners. However, 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 any of the aforementioned 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:
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.
OnDeck is 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.
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.
Our last online lender recommendation is BlueVine. This lender can provide short-term loans, lines of credit, and invoice financing, making them a highly flexible lender to work with. To qualify you’ll need around a 600 credit score and at least $100,000 in annual business revenues. With their short-term loan and line of credit products, you can secure loan amounts up to $250,000 on a one-year term. BlueVine can also factor up to $5 million in monthly invoices.
Read more about BlueVine.
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.
Here’s a list of the best small business grants for minorities.
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.