Small Business Advice

10 loans for minority-owned businesses

Here's the best loans for minority-owned businesses to keep on your radar.

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Whether you plan on launching your own business or wish to expand, having access to reliable, sufficient funding is vital. However, opportunities for small business loans are not always equitable. According to the Annual Business Survey (ABS) of 2020, approximately 1.1 million business owners in the United States, or 18.7%, are owned by minority individuals.

Further, despite the unique systematic obstacles that shape the lived experiences of minority groups within the United States, the number of minority-owned businesses across the nation is expected to rise in the years to come. Therefore, it is essential that minority groups understand what loan options are available to them. So, if you want to learn more about the different types of loans for minority business owners, keep reading.

10 loans for minority-owned businesses

Before delving into the types of loans for minority entrepreneurs and small business owners, we first need to determine who legally qualifies as a minority within the United States. The Code of Federal Regulations defines socially disadvantaged populations as “those who have been subjected to racial or ethnic prejudice or cultural bias within American society because of their identities as members of groups and without regard to their individual qualities.”

This definition also indicates that all social disadvantages must stem from contexts outside of the influence of each individual. Therefore, keeping this directive in mind, let’s take a closer look at who qualifies as a minority within the country:

·      Native Americans

·      Black Americans

·      Hispanic Americans

·      Asian Pacific Americans

·      Subcontinent Asian Americans

Now that you understand who legally qualifies as a minority within the United States let's take a closer look at the different business funding options available for minority entrepreneurs. However, keep in mind that eligibility requirements made by the Federal Government be subject to change at any time.

1.    SBA Microloans Program

The first business loan option for minority small business owners is available through the SBA microloan program. This is provided by the U.S. Small Business Administration, and therefore, it is a Federal Government loan program. While the SBA microloans program is available to all small business owners, it is also a good option for minority entrepreneurs.

Borrows can apply for up to $50,000 on a maximum seven-year fixed term. Like all short-term loans, you will be required to pay a fixed interest rate on a monthly basis until you have paid back your lump sum. In addition, the standard interest rates for this type of SBA loan range from 6% - 9%, depending on your application assets. This can include your credit score, credit history, the loan amount you are looking to borrow, and your personal assets are. Additionally, entrepreneurs should also keep in mind that they will need to offer collateral as eligibility criteria.

2.    SBA 7(a) Loan Program

Furthermore, the SBA 7(a) Loan Program is the administration's principal loan option for all entrepreneurs and small business owners. While it is not specifically for minority individuals looking for a loan, there is still a high approval rate regardless. With a maximum loan amount of $5 million, an SBA 7(a) loan has repayment terms ranging from 10 – 25 years. In addition, compared to other loan programs, it offers lower interest rates.

Moreover, this loan program offers tons of flexibility when it comes to how borrowers can allocate their money. This includes:

·      Purchasing equipment or machinery

·      Renovating a current business location

·      Buying real estate for your small business startup

·      Furnishing your existing or new business property

·      The acquisition of another business

Additionally, to apply for this loan, minority small business owners must partner with a credit union or bank to undergo the application process.  

3.    SBA 8(a) Business Development Program

Another one of the best loans for minority business owners is through the SBA 8(a) Business Development Program. While this is not technically considered a loan, it is a beneficial certification program that helps low-income, socially disadvantaged individuals achieve federal contracting and business funding.

To be eligible for this program, your business enterprise must be 51% owned by an individual who is legally a member of a disadvantaged population. Furthermore, the business development program also offers mentorship and training opportunities for development as well through a business center.

4.    SBA Community Advantage Loans

Furthermore, the following financing option for minority entrepreneurs is the SBA Community Advantage Loan. This program is targeted at helping small business owners from underserved communities. More specifically, it aids nonprofit organizations and other mission-based enterprises.

While there is no collateral required, you will need to show that you have a good credit history and credit score to qualify. Moreover, minority business owners can apply for loans up to $250,000 which again comes with a fixed-term contract. However, the repayment terms and interest rates will vary from case to case, depending on how you choose to use the money. For example, loans for working capital can be extended up to 10 years, while real estate loans can extend for 25 years.

Nonetheless, this is a good loan option for new entrepreneurs with a moderate credit history and credit score. However, only pre-approved lenders in your community can be contacted for this type of SBA loan.

5.    The Business Consortium Fund (BCF)

Further, the Business Consortium Fund (BCF) is a nonprofit organization. It is also one of the nation's most recognized community development financial institutions (CDFI) that provides financing to minority business owners from underserved communities.

While this is a short-term loan, with a maximum fixed term of five years, borrowers can apply anywhere from $100,000 - $750,000. In addition, all interest rates will be determined once you undergo a risk analysis. Moreover, to qualify and be eligible for this loan, you need to first certify your business enterprise with The National Minority Supplier Development Council before starting your application process.  

6.    The Accion Opportunity Fund (AOF)

Moreover, another assistance program for minorities is the Accion Opportunity Fund (AOF). With loan options of $5,000 - $100,000, and interest rates starting at 5.99%, this is a good option for low-income and moderate-income business owners, including women, African Americans, Hispanics, Native Americans, and Asian Americans from underserved communities.

Further, the Accion Opportunity Fund also offers business mentoring, resources, and support throughout the entire loan application process. In addition, the organization also states that repayment options will not change to ensure all minorities have the opportunity to grow their business without surprise fees or payments.

7.    Union Bank Diversity Lending Program

The following business loan available to entrepreneurs is from the Union Bank Diversity Lending Program. This option provides loans up to $2.5 million with a special designation for minorities, women, and veterans. However, keep in mind that to be eligible for this lending program, you must have a minimum of two years of operations.

In addition, the annual revenue of your business must not exceed $20 million. On the other hand, this is a good option as it provides fixed terms and interest rates. However, it is only available for small business owners who operate in California, Arizona, Washington, and Oregon. Nonetheless, if you are a minority entrepreneur looking to expand your business in these states, this loan application is an opportunity you may not want to pass on.

8.    United States Department of Agriculture (USDA) Business Loan

Moreover, the United States Department of Agriculture (USDA) Business Loan is an option available to small businesses, nonprofit organizations, and companies located in rural areas throughout the nation. Although this loan program is not solely for minority owners, it can provide you with up to $10 million in funding.

However, the terms and conditions of your loan will differ depending on what you choose to allocate the funds to. Furthermore, while interest rates are determined by your lender, they will not exceed the maximum that is preset by the department.

9.    Business Center for New Americans (BCNA)

The next type of loan program for minority populations in the United States is through the Business Center for New Americans (BCNA). This organization offers minority small business owners loan amounts ranging from $500 - $50,000. Unlike other loan programs, the BCNA exclusively works with women, refugees, immigrants, and other minorities.

Furthermore, all loans offered by this business center are short-term loans. Therefore, borrowers must pay back their lump sum within a fixed term of six months to three years. However, these loans come with lower interest rates, and it is encouraged that all minorities apply for this loan, regardless of if they were denied a loan from another lender due to bad credit.

10. Kiva Nonprofit Loans

The last type of loan available for minorities in the United States that is worth applying for is a Kiva nonprofit loan. This nonprofit organization offers up to $15,000 with no interest. It works similar to crowdfunding, where individuals are able to loan their money to minority businesses that are working to make positive changes within their community.

Furthermore, the platform allows small business owners to apply for a loan. Once it has been approved by the nonprofit organization, their business cause is posted to the Kiva website, where individuals can lend money to them. Lastly, once the funding is complete, the borrower then repays the lender the amount they provided to their business.

Moreover, while this does not guarantee that you will be provided with your loan amount right away, it is a new way for business owners to promote their business online while gaining funding for their operations.

How to apply for a minority business loan

Further, while the above list is not all of the loans and funding options available for minorities, it is a great place to start when looking for financial support for your business. Moreover, now that you understand what types of loans are available for minority businesses, you may still require some guidance on how to apply for a loan. This is why we’ve put together a step-by-step process that can help you get prepared.

1.    Find out what you need your loan for.

The first step to applying for the loan is to determine what you need the money for. Once you have figured this out, you can eliminate loan programs that will not benefit your business needs. Additionally, you should also budget how much money you intend to apply for.

2.    Reach out to lenders and determine if you qualify

Every loan has specific requirements that will determine your eligibility. Therefore, the next thing you need to do is contact every lender to obtain their criteria for borrowing money. Remember to shop around for terms and interest rates that offer the best options for you.

3.    Collect your documents

Furthermore, once you have determined if you qualify for your desired loans, you will then need to collect the necessary application documents. While these will vary depending on the lender you choose, some standard documents required are:

·      Personal tax returns

·      Personal bank statements

·      Financial statements of your business

·      Legal documents for your business

·      Your business plan

·      Credit score and credit history

4.    Apply for your minority business loan

The final step is to submit your loan application to your chosen lender and wait. Keep in mind that you may have to wait a couple of weeks to hear back, depending on your qualifications and the amount you have applied to borrow. Nonetheless, once you have been approved, you can begin your business operations and successfully launch your small business.

Final thoughts on loans for minority-owned businesses

As you can see, there are several viable loans for minority business owners. In an effort to advocate for equity, many credit lends and organizations are happy to work with minority individuals to aid them in launching their businesses successfully.

Therefore, before getting started, it is always best to reach out to your financial advisor to determine the state of your financial health. Additionally, there is nothing wrong with applying to as many credit unions, financial institutions, and nonprofit organizations for a business loan or minority business loan. It can provide you with more funding opportunities you may not have known were available to you. Alternatively, you can look into business lines of credit and other small business financing. 

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