Business Loans
A Guide To Small Business Loans For Minorities
There are more than 11 million minority-owned businesses in the U.S, a figure that’s increased by more than 100% over the last decade. These businesses generate more than $1.8 trillion in revenue and employ 6.3 million workers.
Despite this entrepreneurial boom, one factor continues to limit the establishment, expansion, and growth of minority-owned businesses: access to capital.
Capital is what allows companies to stay competitive in the marketplace. It takes money to make money, but a minority-owned business can have a hard time getting the cash they need.
On average, minorities are less likely to receive loans, and when they do, they receive lower dollar amounts and higher interest rates. Discrimination and bias from investors and lenders can be a factor, as minority entrepreneurs may not be taken as seriously or given the same opportunities as their non-minority counterparts.
Additionally, minority business owners may struggle to network and connect with investors and financial institutions due to a lack of representation and resources in the industry. All these challenges can make it difficult for minority enterprises to secure the funding they need for small business growth.
That said, the Senate recently introduced a bipartisan committee aimed at closing the funding gap for minority-owned and women-owned businesses. It will take time to pass this type of legislation, but it’s a small step in the right direction to ensure fairer small business startup loans.
Although the small business financing landscape has a long way to go before the playing field is equal, there are a handful of small business loans and programs designed specifically for minority business owners. In addition, there are certain resources and business grants available exclusively to minority-owned small businesses.
If you are a minority business owner and are interested in financing to help grow your business, look at the following funding options!
Minority small business loans are loans designed specifically to make capital more accessible for minority-owned businesses. There isn’t one singular type of small business loan designed for minority business owners. Business loans specifically for minorities can come from multiple loan providers, including the SBA, microlenders, or nonprofit organizations.
And while financing options designed exclusively for minority-owned businesses can be great opportunities to access growth capital, they should always be considered alongside all available options for business financing.
Small business loans for minorities are typically allocated towards businesses in which a majority owner (often defined as at least 51% ownership) belongs to a specific minority group.
Requirements vary per lender, so it’s important to check the fine print. While some minority business loan programs may also require all business members to be part of a minority group, most programs only require the owner(s) to belong to a specific minority group.
The goal of these loans is to level the playing field for minority-owned small businesses and improve their chances of accessing the necessary capital to start, operate and grow their businesses. In general, minority small business loans may come with more competitive rates, flexible terms, and lower interest rates than traditional loans, and funds can be used for a variety of business expenses, including equipment purchases, inventory, marketing, and working capital.
Let’s take a closer look at loans available!
The U.S. Small Business Administration (SBA) offers several loan programs for various purposes, some of which are designed specifically for underserved communities.
The 8(a) Business Development Program is designed specifically for disadvantaged small business owners. The SBA 8(a) program does not actually offer loans—rather, minority or disadvantaged business owners who participate in the SBA’s 8(a) Business Development program have a better chance of qualifying for SBA loans.
Each year, the government reserves a certain percentage of federal contracting dollars for businesses participating in the 8(a) program. This reservation means you:
In addition to your business being at least 51% owned and controlled by U.S. citizens who are economically and socially disadvantaged, there are a few other requirements that you must meet in order to qualify for the SBA 8(a) Business Development program:
You’ll also need to get certified as an 8(a) small business before you can participate in this program. You can learn more here
SBA Community Advantage loans fall under the 7(a) umbrella and are administered by community-based lenders. They are available to entrepreneurs in underserved markets who need anywhere between $50,000 and $250,000 in financing. Community Advantage loans for minority business owners are guaranteed up to 85% for a $250,000 loan, with interest rates typically falling between 7% and 10%.
SBA Community Advantage Loans are structured as term loans. This means that they have a specified repayment schedule and either a fixed or variable interest rate.
Community Advantage (CA) Lenders must make at least 60% of their loans in underserved markets. Underserved markets include:
Small business owners and non profit childcare centers can borrow anywhere from $500 to $50,000 through the SBA Microloan program.
The average SBA microloan is $14,434 with a 6.5% interest rate and a six-year repayment schedule. While anyone can apply, the Microloan program is designed to assist new and early-stage businesses, particularly those owned by women, low-income, veteran, and minority small business owners.
Minority-owned businesses received 51.5% of the Microloans issued in 2020, while women-owned businesses received 46.6%.
Union Bank’s Business Diversity Lending program is designed to provide loans to minority-owned businesses of up to $2.5 million. It is available to minority or women entrepreneurs who “own and actively manage at least 51% of the business”.The company also needs to have been open for at least two years and must have annual sales below $20 million.
Accion’s nonprofit organization offers term loans for minorities ranging from $300 to $1,000,000 for both established and new businesses. While Accion doesn’t exclusively fund minority-owned ventures, over 60% of their borrowers come from minority communities. Fixed rates range from 7% to 34% APR depending on your credit score and other criteria.
Certified by the U.S. Department of the Treasury as a Community Development Financial Institution, the Business Consortium Fund (BCF) works to make financing more accessible for minority-owned businesses through various programs.
Minority business owners can borrow anywhere from $75,000 to $500,000 from the BCF through their Direct Lending Program (in the form of either a term loan or line of credit). To be eligible, you must certify your business as a minority business enterprise through the National Minority Supplier Development Council (NMSDC).
Federally recognized American Indian tribes and Alaska Native groups have access to affordable financing guaranteed (up to 90%) through the Indian Loan Guarantee program. Individuals can borrow up to $500,000, while tribes and business entities can access higher amounts. Borrowers can use processed for a wide variety of purposes, from working capital to purchasing equipment.
The borrower must have 20% tangible equity in the project to be eligible for this program. Additionally, the project must also benefit the economy of the reservation or tribal service area.
The Business Consortium Fund Loan caters exclusively to minority-owned businesses who haven’t had luck securing financing through traditional financial institutions. Business loans for minorities of up to $500,000 are available. Interest rates are capped at 3% above the prime rate, and repayment terms extend up to seven years.
To be eligible, you must certify your business as minority-owned through the National Minority Supplier Development Council (NMSDC). You also must have contracts or purchase orders with the NMSDC.
Many of the financing options geared towards minority-owned businesses operate on the state and local level, which often results in specific lending options for industries and use-cases.
Research your state’s unique loan programs, business grants, and resources to find less competitive, affordable funding. You may even want to consider working directly with a state-specific organization—they can help you navigate the terrain and identify your best options.
Community Development Financial Institutions are mission-driven financial institutions created to provide affordable credit, capital, and other services to minority and economically distressed communities. There are over 950 CDFIs nationwide certified by the CDFI Fund, a part of the U.S. Department of the Treasury.
The CDFI Fund provides technical and financial assistance to Community Development Financial Institutions serving minority communities through two programs:
Use the CDFI Fund’s Award Database to search for organizations in your state that have received awards.
The Business Center for New Americans provides small business loans, microloans, and several other business services to immigrant and refugee entrepreneurs in New York City.
Retail, light manufacturing, restaurant, and service businesses may borrow up to $50,000. Interest rates range between 8.25% and 10%, and repayment terms extend from six months to three years. New businesses are eligible, and there is no minimum credit score required to qualify for these minority business loans.
The Office of Hawaiian Affairs (OHA) offers the Malama Loan to Native Hawaiian small business owners. Applicants can borrow $2,500 to $100,000 with repayment terms of up to seven years at a 4% APR. Use-cases for the OHA’s Malama Loan include:
You must be a resident of the state of Hawaii to be eligible. You must also have a current OHA Hawaiian Registry card to prove you’re of Native Hawaiian ancestry.
The Minority and Women Revolving Loan Trust Fund program provides working capital loans of up to $35,000 and fixed asset loans for minorities and women of up to $50,000. Loan applicants must be minority or women entrepreneurs with no more than $100,000 in annual gross revenue.
This initiative is the result of a partnership between The Valley Economic Development Center and JPMorgan Chase. The National African American Small Business Loan Fund is designed to provide financing to black-owned small businesses in New York City, Chicago, and Los Angeles.
Loan amounts range from $35,000 to $250,000. Borrowers can also receive financial consulting as well as technical assistance with marketing and business plan development. Capital can be used for expansion, covering short-term cash flow needs, and providing contractor lines of credit.
Both public and private organizations offer small business grants specifically designed for minority-owned businesses. While some small business grants may not be available every year, it’s important to keep an eye out for these debt-free opportunities.
The grants.gov website (also available as an app) is a great resource to keep tabs on more than 1,000 grant programs across all 26 federal grant-making agencies, including the Department of Commerce and the U.S. Small Business Administration.
With small business grants ranging from $50,000 to $500,000, Rural Business Development Grants (RBDG) are designed to provide technical assistance, training, and other initiatives that contribute to the development or expansion of private businesses in rural areas. To quality, the minority-owned business must employ 50 or fewer employees and have less than $1 million in gross revenue.
The FedEx Small Business Grant Contest is open to all kinds of qualifying small businesses that compete for 10 prizes of up to $50,000 in prize money and up to $7,5000 in FedEx Office print and business services.
With 34 locations across the United States—located in areas with the highest concentration of minority populations and the largest number of minority businesses—MBDA Business Centers provide a myriad of services to assist minority-owned firms.
Minority entrepreneurs can access one-on-one financial counseling from business experts at Minority Business Development Agency centers for assistance ranging from securing capital to competing for contracts.
A membership-driven entity, The Minority Chamber of Commerce has locations in most cities. These advocacy groups push legislation that assists black, Asian, and Hispanic entrepreneurs and offers general resources and networking opportunities.
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