Small Business Loans for Minorities
Small business loans for minorities offer the opportunity to fund a new venture, and they often have favorable terms and rates. Other loan programs that aren’t geared solely toward minorities could certainly still benefit minority business owners.
The Minority Business Development Agency gathers information on the state of minority business enterprises (MBEs) and the trends and challenges affecting minority business growth. According to the agency’s research, there are more than 8 million minority-owned firms in the U.S.
From 2007 to 2012, the number of minority-owned businesses grew by 38% and now employ 7.1 million people. During 2017, the State of a Small Business survey found that the number of businesses with African American owners increased by 400% in one year.
As with almost all business owners, small-business loans can be an important resource for minority entrepreneurs. A small-business loan is a type of financing used by startups and small businesses for funding or expansion. According to the Small Business Administration (SBA), a small business is defined as one with fewer than 500 employees and less than $7 million in sales.
Small-business loans and the ability to access and secure this type of funding are often crucial for many businesses to survive.
Below you’ll find more detailed information about small-business loans for minorities and some of the important things to know when looking for financing for a new or small business.
On this page:
- What Are Small-Business Loans?
- What Are the Eligibility and Application Requirements for Small-Business Loans?
- Small-Business Loans for Minorities Specifically
- Additional Minority Business Loans You Can Apply For
- What Are the Pros and Cons of Small-Business Loans for Minorities?
- Other Resources for Minority Businesses
What Are Small-Business Loans?
Some small-business loans are similar to other types of installment loans like mortgages, student loans, or personal loans. With most small-business loans, you apply, and if you’re approved, you receive a certain amount of financing. You’ll be charged interest on the loan, and you’ll pay the loan back with set monthly payments for a specific amount of time.
Other small-business loans include revolving lines of credit. This means you would use what you need and pay it back as you use it.
What Are the Eligibility and Application Requirements for Small-Business Loans?
As with other types of financing, certain eligibility criteria are considered when someone applies for a small-business loan. In most cases, both the personal finances of the business owner and the business entity itself are considered.
Some of the factors involved when a person applies for a small-business loan might include:
- The owner’s credit score and the business’ credit score
- The owner’s resume
- The amount of the loan that’s requested
- The financial health and stability of the business
- The company’s business plan
>> Read More: How to establish and build business credit
Generally, the smaller or newer the business is, the more relevant the owner’s personal credit history.
Small-Business Loans for Minorities Specifically
The following are some small-business loans for minorities:
National African-American Small-Business Loan Fund
The National African-American Small-Business Loan Fund is a fairly new program launched by VDEC and JPMorgan Chase. It was created to boost economic opportunity for minority-owned businesses in the cities of New York, Chicago, and Los Angeles. Along with access to capital, this program provides technical help and financial consulting. It’s administered by VEDC, which is a direct small-business lender and an intermediary for SBA loan programs.
SBA 8(a) Business Development Program
The SBA offers financing options and assistance programs for minority business owners. The 8(a) program is one such option. This is a business assistance program for what are described as small, disadvantaged businesses.
To be eligible for participation in this program, a business has to be owned and controlled by at least 51% socially and economically disadvantaged individuals, the criteria for which is available on the program’s website.
There are other SBA loans available, too, and they are offered through national and regional lenders and banks. The loan amounts for an SBA loan vary quite a bit depending on the specific program someone is applying for.
Minority-Owned Business Loans From National Funding
National Funding is a company that advertises small-business loans specifically for minority owners. The loans range from $5,000 to $500,000 with no collateral required. According to National Funding, its one-page loan application is simple, and some people may receive approvals and funding within 24 hours.
Community Development Financial Institutions
Community Development Financial Institutions (CDFIs) are organizations that help fund small businesses, nonprofits, and affordable housing programs. These are private institutions that provide lending to disadvantaged and low-income individuals and communities.
CDFIs offer financial assistance awards that include not only loans but also grants and equity investments. CDFIs offer microloans in amounts up to $50,000 as well as alternative loans up to $100,000.
These loans tend to have flexible approval processes and, often, better interest rates than what someone would get with a traditional lender.
Additional Minority Business Loans You Can Apply for
Along with loan programs specifically for minorities or for people who might not have access to traditional funding, other small-business loan programs can be valuable for new business owners.
OnDeck is an online financing option offering term loans up to $500,000 and lines of business credit up to $100,000. Term loans have rates as low as 9.99%, and lines of credit have rates as low as 13.99%.
With term loans, terms range from three to 36 months, and there is a one-time origination fee of anywhere from 2.5% to 4% of the loan amount.
OnDeck loan eligibility requirements including being in business at least a year, having a personal credit score of at least 500 (i.e. perfect credit is not required), and having annual revenue of at least $100,000 in the past 12 months.
Kabbage is a small-business lending resource that offers loans up to $250,000. Kabbage offers lines of credit, and it’s simple to apply — in most cases, applicants receive a decision very quickly. There is no origination fee, though there is a monthly fee for every month a borrower has a balance.
To qualify, applicants should be in business for at least a year and have at least $50,000 in revenue for the year, or $4,200 per month in revenue over the last three months.
QuarterSpot offers loans up to $250,000 for qualified applicants. Funding may be available in as little as 24 hours. Terms range from nine to 18 months. Borrowers can also save money when they pay off their loan early; an applicant’s personal credit score isn’t impacted when they apply.
Minimum qualifications include being in business at least a year and having revenue of $16,000 per month. An applicant’s personal credit score needs to be at least 550, and they need at least 10 sales per day.
SBA Microloan Program
The SBA Microloan Program is good for very new startups. Microloans are available in amounts of up to $50,000, although the average amount of this loan is around $13,000. These loans can be used for working capital, inventory and supplies, furniture, machinery and equipment, and other startup-related needs.
>> Read More: Microloans for Small Businesses
Microloan repayment terms vary depending on the loan amount, how the borrower plans to use the funds, and the requirements of the intermediary limit.
The maximum repayment term is six years, and the interest rates generally range from 8% to 13%.
Fundbox is another lender that offers revolving lines of credit for businesses. Fundbox offers credit decisions in a matter of minutes. Based on the amount of funding someone is approved for, the amount repaid minus any relevant fees becomes available again. If a borrower repays early, the fees are waived.
A business checking account is needed to apply. Other requirements include at least two months of activity in accounting software supported by Fundbox, or three months of transactions in a business bank account. A business should have at least $50,000 in annual revenue and should be based in the U.S. or certain U.S. territories.
What Are the Pros and Cons of Small-Business Loans for Minorities?
As with anything, there are pros and cons to small-business loans, and there are things to consider before trying to secure this kind of funding. There are also alternatives to small-business loans that may be a better option for some business owners.
Pros of Small-Business Loans
There are some pros to small-business loans. Primarily, of course, there is the opportunity to get the funding you need. Also, when you get a small-business loan as opposed to investments, the lender doesn’t have any say in how you operate your business or even how the funds are managed. You still have complete control over your business, and you’re just responsible for repaying the loan. Also, you don’t have to repay the loan based on your profits.
Business loans tend to have competitive interest rates, and the repayment terms are often more flexible and generous than other types of financing like credit cards.
Finally, another big pro of a business loan is the fact the interest payments on a business loan can be tax-deductible.
Cons of Small-Business Loans
The lending requirements for a small-business loan can be rigorous. Depending on the lender, small-business owners may have to create a comprehensive business plan and be prepared to demonstrate a responsible credit history and the financial details of your business.
Most commercial lenders also offer small-business loans with variable rates, so that can mean you pay more if interest rates go up.
Many lenders will require some form of collateral before they’ll provide funding, and a business loan is a liability that can impact the valuation of your business.
Other Resources for Minority Businesses
Aside from small-business loans, the following are some other resources and options that might be helpful for someone looking for minority-owned business funding.
SBA Resources for Minority Business Owners
The SBA offers different programs that specifically provide resources and information to minority-owned businesses (the 8(a) program mentioned above, for example). Along with educational resources, the SBA provides loans that go with this program. The SBA also works with women-owned businesses and service-disabled veteran business owners.
Other Forms of Loans and Financing
There are alternatives to loans and financing for any interested business owner. One example is working with an angel investor. Angel investors usually invest in startups or early-stage businesses, but they do so in exchange for a significant return on their investment. Venture capitalists provide money to startups that might be considered risky, but have high growth potential.
Invoice factoring is a situation where you are provided with upfront funding based on the billed invoices you have out.
Crowdfunding is another option. With crowdfunding, business owners — or even just people with good ideas — can tap into a pool of investors on their own.
Grants for Minority Business Owners
Grants are a great option for anyone who wants to fund a business because the money doesn’t have to be paid back. There are many grants geared specifically toward minority business owners.
Some grant sources for minority business owners include the National Association for the Self-Employed, the National Minority Supplier Development Council, and the Operation Hope Small-Business Empowerment Program.
>> Read More: Small business grants
The Minority Business Development Agency
The Minority Business Development Agency (MBDA) is part of the U.S. Department of Commerce. It’s the only federal agency geared specifically toward helping in the establishment and growth of minority businesses in the U.S. MBDA works to coordinate resources from public and private sector organizations.
MBDA has more than 40 business development centers throughout the country located in areas with the largest minority populations and minority businesses.
Starting your own business can be one of the best ways to have control over your life and schedule and build long-term wealth. You need funding to start a business, however. Options include small-business loans for minorities, small-business administration loans for minorities, and even business grants that don’t have to be repaid.