How to Get a Minority Business Loan

White-owned businesses have historically found that getting finance is easier than for many minority-owned businesses. Despite these difficulties, the number of minority-owned businesses is growing fast, customers are actively looking to support minority-owned businesses, and lender and government schemes are improving – here’s what you need to know to get a minority business loan.

What is a minority-owned business?

A minority-owned business is usually defined as any business that is at least 51% owned and controlled by someone who is at least 25% African American, Asian, Hispanic, Native American, or Alaskan Native.

What is a minority business loan?

A minority business loan is a loan designed to help minority-owned companies get the funding they need to grow. They can be sourced from banks, online lenders, the Small Business Administration, and other financial institutions. The majority of loan programs available are not necessarily minority-specific but some are tailored for minority-owned businesses.

How does a minority business loan work?

The most common form of minority business loans are term loans. The lender agrees to give a business a sum of money which is paid back, plus interest, in regular installments (usually monthly). The term of the repayments and the interest rate varies from loan to loan.

Types of business loans for minorities

SBA 7(a) loans

The Small Business Administration has several loan programs that are available for minority-owned businesses and the SBA 7(a) loan is probably the most well known.

There are several different types of SBA 7(a) loans and which one you apply for will depend on your situation and the amount you want to borrow. An SBA 7(a) loan can be used for real estate, working capital, refinance, or the purchase of fixtures and fittings. Amounts up to $5 million are available.

The SBA doesn’t lend the money but works in partnership with approved lending bodies. The SBA then guarantees between 75% and 85% of the sum lent. Because of this guarantee, lenders can offer low-interest rates and generous terms which is why SBA loans are so sought after.

However, to qualify you typically need high credit and a proven trading history of at least 2 years.

SBA microloans

The SBA also offers a microloan program. Amounts up to $50,000 are available but the average loan is around $13,000. SBA microloans are usually provided via community development financial institutions and are intended for equipment, working capital, inventory, and fixtures.

SBA 8(a) loan

The SBA 8(a) Business Development program is specifically designed for disadvantaged businesses and offers financial help for minority-owned companies. Amounts up to $4 million for goods and services and $6.5 million for manufacturing are on the table. The SBA’s goal for this program is that it will develop “firms that will go on to thrive in a competitive business environment.”

SBA community advantage loans

The Community Advantage program is another that is aimed at minority businesses and is a development of the 7(a). It is a good choice for minority businesses of all types and offers funding of up to $250,000. The money borrowed can be used for virtually anything and like other SBA loans it offers low-interest rates and long repayment schedules. Against this, it requires a detailed application, personal guarantee and may be slow to fund.

Nonprofit loans

Several nonprofit organizations are prepared to offer loans to small businesses. Though not always aimed solely at minority businesses, this form of lending does offer the chance of funding to people who are finding it difficult to source from more traditional lenders.

Two such organizations are Kiva and the Accion Opportunity Fund but there are many others out there.

Business consortium fund Loan

The National Minority Supplier Development Council (NMSDC) offers its Business Consortium Fund Loan purely to minority-owned businesses. Sums of between $250,000 and $750,000 are available with repayment periods of up to five years.

USDA business loans

The U.S Department of Agriculture has its own loan program for rurally-based small businesses. These loans are ideal for businesses in need of large sums as the maximum available is $25 million. Like SBA loans, USDA business loans have low-interest rates and long terms.

Union bank business diversity lending program

This is another loan and business line of credit program designed for minority-owned businesses in the states of Arizona, California, Oregon, and Washington. It can provide loans of up to $2.5 million with repayments spread over a maximum of 25 years.

Accompany capital

Accompany Capital offers short-term loans of between $500 and $50,000 to minority-owned businesses, including those owned by immigrants, women, and refugees. The repayment periods are limited to a maximum of three years but the interest rates are low.

Are there alternative options for business loans for minorities?

Apart from the more traditional lenders, there are various alternative online lenders to consider:

OnDeck is typical of this new breed of lender and offers loans and lines of credit of up to $250,000 for those borrowers that qualify. The application process is quick and, if successful, the funds are in your account in days.

OnDeck

✔ Funding: Borrow $5,000 - $250,000
✔ Minimum Credit Score: 600
✔ Loan term: up to 36 months
✔ Funding turnaround: as soon as same business day

OnDeck offers fast business loan options such as term loans, business lines of credit, and SBA PPP loans and funding as fast as 24 hours. Minimum requirements include: at least 1 year in business, 600 credit score, $100,000 in gross annual revenue and a business checking account.

COMPARE LOANS

BlueVine provides the flexibility of lines of credit and invoice factoring for small businesses of all kinds.

BlueVine

✔ Funding: Borrow $5,000 - $250,000
✔ Minimum Credit Score: 600
✔ Loan term: 6-12 months
✔ Funding turnaround: 24-48 hours

With BlueVine, borrowers can get approval as fast as 24 hours and obtain a business line of credit for short term capital needs while only paying interest on the funds you borrow.

COMPARE LOANS

Fundbox can provide term loans and lines of credit of up to $150,000. The lines of credit are on a 12 or 24-week term. The loans are short-term, with repayment between 24 and 52 weeks.

Fundbox

✔ Funding: Borrow $2,500 - $150,000
✔ Minimum Credit Score: 600
✔ Loan term: 12-24 months
✔ Funding turnaround: as fast as next business day

Fundbox requires minimal documentation and access to a revolving line of credit without origination or maintenance fees. Borrowers are not required to have collateral (with exception of larger credit lines which are subject to a personal guarantee).

COMPARE LOANS

What are the pros & cons of minority business loans?

PROS

• You don’t have to sell equity in your company and share the profits.
• You can expand your business without reducing your working capital.
• Your cash flow won’t be compromised.
• These loans often have funds allocated to help businesses like yours.
• Some come with additional advice and help.

CONS

• Repayments can be difficult to meet if the health of your revenue changes.
• Their qualification requirements are still often high.
• If your credit score is low any loan you can get will likely have high-interest rates.