Minority Small Business Loans
There are 11.1 million minority owned businesses in the United States. This figure has only doubled in the last decade, and many of the small business owners have have felony conviction.
Minority owned businesses employ an estimated 6.3 million workers and generate more than 1.8 trillion dollars in revenue.
But despite these impressive numbers and growth in the success of minority owned businesses, they are less likely to receive loans. Banks are often unhelpful; they also have a lengthy application process and high rejection rates.
And if a minority business owner is lucky enough to receive a loan, they receive loans at a lower dollar amount but at higher interest rates.
I know, it makes zero sense, and it needs to change.
Funding options that are exclusively created for minority owned and operated businesses is overdue but there are great opportunities available, which should always be considered alongside the other available options.
And in order to do that, you need to know what options are available to you so that you can make the best decision for you and your business.
What is a minority small business loan?
What exactly is a minority business loan? It sounds like it would be simple and straightforward, but it is not exactly as it seems. Like a lot of words in the English language.
It is important to note that there is not one specific loan designed for, and given to, those who are from a minority group. But there are a few different options available for minority owned small businesses and their owners.
While there is more than one type of loan out there, there are also multiple loan providers that have loans specifically available to minority owned businesses. These loans are incredibly important because they are designed to make capital more accessible to minority owned and operated businesses. That is their purpose.
So how do you qualify for a minority business loan?
To qualify for a minority business loan, you must be certified as a minority business, and to be certified as a minority business.
The business must be at least 51% owned, operated, and controlled by a minimum of one citizen of the United States whose ethnic background is at least 25% Asian Indian, Asian Pacific, Black, Hispanic, or Native American.
Good to know… but how do you become certified?
There are a few types of business certifications you can get. However, there are to major categories: Government-backed Business Certifications and Private Sector.
It is all very vague, which is why we will break it down for you as best as we can so that you not only know all of the options available to you, but that you are making the decision that is most beneficial to the growth and success of your business.
So, pay attention if you mean business.
Types of minority business certifications you can get
Getting certified is incredibly important and must be done in order to proceed with obtaining a loan. But as your business is unique in it is on right, and all small businesses are not made the same, so it makes sense that there be multiple certification options.
Knowing the certification routes and options you can take will help you to choose the best option for your business, current situation, and future goals.
Federal Government Certification
Federal certification programs are designed to establish consistent competence standards for the business industry you are in.
The National Minority Supplier Development Council (NMSDC) has provided for minority owned and operated businesses who want to connect with companies in the corporate world. Once approved, your business will be listed as an MBE in both the regional and national Minority Supplier Databases.
The NMSDC does have many corporate members and private sector companies that want do want help small businesses. Through the NMSDC, you can connect with these companies to win contracts!
These loans are invaluable to these businesses and are successfully in helping them with their respective financial situations. When the loans are designed, they are created for the specific purpose of making capital more accessible to minority owned and operated businesses.
State and local agency certifications
In order to participate with the MBE programs in your state, you will need to contact your state or local programs for their specific instructions.
To get certified as an MBE in your respective state, you will need to also apply at the regional office that is closest to your business’ location.
Minority Business Enterprise Certification (MBE)
This certificate mirrors the federal 8(a) programs, but you are unable to qualify if you have already participated in the 8(a) programs.
To receive this certification, you must be classified as “small” by the SBA standards at the time of applying and throughout the nine-year program term.
There are specific qualifications that you must meet in order to qualify as MBE with the National Minority Supplier Development Council NMSDC, or the local MBE program administered by the city, county, or state you are in.
These are the minimum requirements:
You must be a for-profit business located in the United States. Your business must be 51 percent be owned, operated, and controlled by an individual who is a presumed group, meaning, of a minority group.
You must be a member(s) of a presumed group, which for MBE includes:
Black American – any Black racial group originating in Africa.
Hispanic – origins in Mexico, Puerto Rico, Cuba, Central and South America, Spanish, and Portuguese cultures.
Native American – must be of Native American/Native Alaskan or Hawaiian. Or a certified member of a federal or state recognized Indian Tribe.
Asian Pacific – origins in the Pacific Islands, China, Taiwan, Korea, Japan, Thailand, Burma, Cambodia, Vietnam, Malaysia, Indonesia, Singapore, and the Philippines.
Subcontinent Asian – origins in India, Pakistan, Bangladesh, Bhutan, the Maldives Islands, Nepal, and Shri Lanka.
Types of loans available for minority business owners
Small Business Administration (SBA Loans)
Minority SBA Loans
The SBA Loans for Minorities
The SBA 7(a) loan is best for business owners who already have an established business and want to grow their company. The loan amounts that can be received through the receipt of this loan range from $30,000 and $50,000.
And in order to qualify, the business must have an annual gross revenue of at least $120,000. Your credit score has to be in decent shape, needing to be at a score of 680 or higher. It’s good to note, however,
SBA 8(a) Business Development Loan
The SBA 8(a) Development Loan is best for minority owned businesses that compete for federal contracts. The aim of this loan is to award at least 5% of federal contracting dollars to a s small, disadvantaged business.
The minority groups included are:
Alaska Native Corporations
Indian Tribes, Native Hawaiian Organizations
Community Development Corporations
Asian Pacific Americans
Subcontinent Asian Americans.
In order to be eligible, your business must be at least 51% owned and controlled by United States citizens who are socially and economically at a disadvantage, this includes cultural biases.
To become certified for the 8(a) program you need to create a profile at SAM.gov where you will provide the necessary information to proceed with the application process. You will be notified whether your application was approved or not.
SBA Microloan Program
The SBA Microloan is best for those businesses who operate in underserved markets and communities. The financial amount offered by the SBA microloans can be as high as up to 50,000%, and interest rates of microloans often range from 8% to 13%, with the maximum amount of time allowed for a loan’s repayment window, is a term of 6 years.
SBA Community Advantage Loans
The SBA Community Advantage Loans are for businesses who are in underserved communities and need financial assistance, up to the amount of $250,000 or less.
This form of loan comes with the same guarantees as the 7(a) loan. This means that there is an 85% guarantee for a loan up to $150,0000, and 75% guarantee for loans that are $150,000 and higher.
A loan guarantee is given by third-party lenders who will assume the debt obligations in the event that the borrower defaults on their loan, meaning, the borrower has failed to pay back their debt according to the initial agreement. Loan default is also loan as loan delinquency.
These loans are safe and reliable way to raise money, but they involve risks, such as the high interest rates.
This loan is better suited for new business owners that need $50,000 or less in funding. It is also good for borrowers who have poor credit or little financial resources.
Business Loans from Alternative Lenders
Financing with alternative lenders has continued to grow in popularity since the Great Recession (December 2007-June 2009). Alternative lenders usually have different requirements for their approval process.
Banks and the SBA typically will not approve a loan for a business that has been up-and-running for one year or less. As a result, borrowers find themselves looking towards alternative lenders for their business loans.
Union Banks Business Diversity Lending Program
A lending program that was created specifically for helping minority owned businesses qualify for the financing that will help them with their needs and to grow their business.
In order to receive a loan, you must qualify as being a minority business owner under their ethnic categories. If you qualify as one, you must own and manage at least 51% of the business.
Your business itself must have annual sales that does not exceed $20 million dollars. You must also have been in business for at least two years, and your borrowing needs are $2.5 million dollars or less.
To get in contact with Union Bank, you can call 1-888-818-6060.
USDA Business Loans
USDA Business Loans are loans guaranteed by the United States Department of Agriculture (USDA). The lenders who provide these loans are banks or credit unions, often to business in rural areas. That is why this loan is best suited for those minority owned business located in rural areas.
The National Minority Development Council (NMSDC)
Business opportunity for minority business enterprises where they can connect with corporate members. The NMSC Business Consortium Fund provides loans programs and consulting services to minority businesses and owners as well as provide loans to borrowers.
Business Consortium Fund (BCF)
The NMSC Business Consortium Fund provides loans programs and consulting services to minority businesses and owners as well as provide loans to borrowers. Best for minority entrepreneurs who have been unable to obtain funding through other means.
The Business Consortium Fund has created 1002 loans and have had have provided roughly $225 million dollars in financing to their borrowers.
Indian Loan Guarantee Program (ILGP)
Available to those of American Indian and Alaska Native tribes and individuals in order to over-come the barriers to conventional financing and ensure that the borrower receives reasonable interest rates.
National African American Small Business Loan
The National African American Small Business Loan Fund is designed to provide the needed financing to African American owned and operated small businesses and is available in New York, Chicago, and Los Angeles.
The loan amounts vary, ranging anywhere between $35,000 to $250,000. Borrowers are also able to receive financial consulting. There is also technical assistance available with providing help with marketing and business plan development.
First Nations Development Institute Grant
The First Nations Development Institutes help individuals to understand financial markets and a variety of financial instruments for both borrowing and saving. Projects have helped with the understanding of opening and maintaining a bank account, as well as how to use credit wisely. Which is important in all of life but especially when running a business.
The First Nations began its national grant-making program in 1993. Since that time, the First Nations Development Institute has been able to provide 2,150 grants towards Native projects; the total grants awarded nearing $43 million dollars.
National Minority Business Council
Their approval process is much quicker. There is a simple online application and once received, you could potentially receive your business loan in as little as 24 hours.
Non-profit loans are best for low-to-moderate income business owners.
Online Business Lender Options
Particularly helpful during these trying times, there are also Online Business Loans available to minorities. Some notable Online Business Lenders are: Kabbage, OnDeck, Fundation, and BlueVine.
If you do not have the best credit and are in need of funding, Kabbage may be the online lender for you. Credit lines offered are up to $250,000 and can be used for nearly all business purposes. Kabbage does not have a minimum personal credit score required, making it an accessible lender for those who are less qualified minority entrepreneurs.
Qualified does not mean the efficacy of your business and how qualified you are in doing the business that you do. It is your ability to qualify for other forms of lending, forms of lending that often that have more strict requirements and standards.
OnDeck is an alternative lender that also has a wider acceptance credit spectrum. The loans that are offered are short-term in length, and the busines lines of credit that are obtained by the borrower can total up to $500,000 in financing. Unlike many competitors, OnDeck has one application and it’s quick and easy. OnDeck is a great option for minority business owners who need capital in nearly every aspect of their business.
Fundation offers medium-term loan and medium business lines of credit and is not accessible for startups or small businesses – you need to have at least three employees to qualify. And in order to be a qualified borrower, you will also need to have a credit score of at least 660. Fundation offers a more affordable financing option with interest rates starting at 8%, and the financing that is received can be used for most of your business needs.
While all available loans are short-term loans, you can receive a financial assistance in the form of a loan, lines of credit, and invoice financing. BlueVine is more flexible in their requirements, making them a more acceptable option. To qualify, your credit score must be around 600; you must also have at least $1,000 in business revenue, annually. BlueVine is promising, providing loan amounts up to $250,000 for a one-year term.
Now you have the information and resources needed to move you closer to finding and obtaining the financial help that you and your business needs. Use this resource to your advantage and we wish we wish you the best of luck!