Many financing products get marketed as a small business loan for minorities, but most of these loans are virtually indistinguishable from a traditional business loan. These loans have the same rates, terms, and qualifications as loans offered to any other small business. In other words, they’re a minority business loan in name only.
Fortunately, there are government-backed small business lending programs that actually do offer a small business loan for minorities. In this article, we’re going to take a look at the three best places to find a small business loan for minorities and other business resources available to minority owned businesses.
One of the most affordable financing options for a minority owned business is an SBA loan. If you have a 680+ credit score (check yours for free here), $120,000+ in annual revenue, and have been operating for at least 2 years then you may qualify for up to $5,000,000 with our recommended SBA loan provider, SmartBiz. They offer 10-25 year loans with rates that start at 6.75%. You can get prequalified online in minutes.
Where to Get a Small Business Loan for Minorities
In this section we’re going to look at where minorities who own established, healthy small businesses can find favorable financing. One issue minorities with strong businesses face when seeking funding is that even relatively minor issues (like minimal collateral or thin credit history) can result in application denials or loans with higher rates and shorter terms. Listed below are programs that can offer healthy businesses affordable financing even if they don’t check all the boxes.
Startups and borrowers with significantly damaged credit have specific qualification issues that are not likely to be addressed by lending programs designed for a minority owned business. If you’re a young business looking for startup funding, read our indepth guide to startup business loans. If your credit is damaged, read our article on bad credit business loans.
The three best loans for minority owned businesses are:
1. SBA Loans for Minority Owned Businesses
SBA loans can be obtained at most national and regional banks. Most SBA loans are given to established, healthy small businesses. And, while technically startups can get SBA loans, they’re usually only given to the strongest borrowers with lots of collateral. If you’re a startup, read more in our article on SBA loans for startups.
One of the SBA’s main goals is to help small businesses get access to the capital they need to grow. While they’re available to all small business owners, the SBA works hard to help minority business owners get financing.
“Minority business owners received over $8.65 billion during fiscal year 2016 in approved financing from either the SBA 7a loan or the SBA 504 loan for commercial real estate.”
— Andrea Roebker, a Regional Communications Director for the SBA
“Minority business owners received over $8.65 billion during fiscal year 2016 in approved financing from either the SBA 7a loan or the SBA 504 loan for commercial real estate.”In fact, as of March, 2017, minorities have been awarded 26% of all SBA 7a loans for the 2017 fiscal year.
The table below represents a snapshot of the typical terms and qualifications of an SBA 7a loan through SmartBiz, our recommended SBA loan provider.
SBA Loans for Minority Owned Business
| Loan Amounts | |
| Annual Gross Revenue Requirements | |
| Credit Score | |
| Time in Business Requirement | |
| Funding Time | |
| Average APR Range | |
| Payback Time Period | |
For more information you can read our review of the best SBA loan providers or learn how to apply for an SBA loan.
When an SBA Small Business Loan is Right for Minorities
An SBA loan is most likely the best option if you need working capital or commercial real estate financing and qualify as a prime borrower with an established, profitable, business. You also need to be willing to wait for 30 – 90 days to receive your funds because the SBA loan process can be lengthy compared to other financing options.
The SBA has a number of different types of loans with different purposes and uses. SBA 7a loans are great for making large equipment purchases or other long term working capital needs. An SBA 504 loan, on the other hand, can be a great option for your business’s commercial real estate financing needs. You can read our article on types of SBA loans to learn about each type find out which one might be right for you.
Benefits of SBA Loans for Minorities
An SBA loan has plenty of benefits when comparing it to other forms of small business financing. Generally the most important benefits are:
- Lowest Cost: SBA loans typically carry the lowest interest rates and a low APR compared to other small business loans.
- Low Collateral: Unlike many traditional bank loans, the SBA doesn’t require collateral with every small business loan.
- Long Repayment Terms: You can qualify for 10 year repayment terms with SBA 7a loans, and up to 25 year terms with SBA 504 loans. Many traditional and alternative loans will be limited to repayment terms of 5 years or less.
Our recommended SBA loan provider, SmartBiz, has made the SBA loan application process fast. They can fund working capital up to $350K and commercial real estate up to $5MM as quick as 30 days. You can prequalify online within a few minutes.
2. CDFI Small Business Loans for Minorities
Community Development Financial Institutions (CDFI) are focused on helping disadvantaged people and businesses get access to affordable financing. CDFI’s get backed by the federal government in order to make loans to small business owners that may have difficulty getting approval at a traditional lender or to get approved for financing with favorable rates and terms.
Traditional lenders are generally very conservative in their underwriting. Business owners must typically have high amounts of collateral, great credit, and a safe business model in order to qualify for financing with good terms. A minority owned small business with less than perfect credit, lack sufficient collateral, or that’s operating in a less than prosperous area may not only be more likely to qualify for financing with a CDFI, but qualify for a better loan.
When a CDFI Small Business Loan is Right For Minorities
A CDFI loan is a good option for minority business owners whether you’re a prime borrower or not. If you’re running into trouble getting financed through traditional lenders due to a lack of collateral or your credit profile, a CDFI may be able to get you financed with affordable rates.
Also, if your small business is located in a disadvantaged geographic location, you may find a CDFI more willing to approve financing or offer financing on more favorable terms.
Loans through a CDFI vary greatly by institution. Some CDFIs will focus on personal lending, other business lending. Some will offer microloans whereas others will offer multimillion dollar loans for apartment complexes or commercial real estate. CDFI’s designed to help businesses will typically be able to assist with SBA loans (see above) and often offer a few other loan products as well. Below are example of small business loan offering you may find at your local CDFI.
Examples of Common CDFI Small Business Loans
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| Loan Terms | |||
| APR |
Benefits of a CDFI Small Business Loan for Minorities
If you find financing through a CDFI then you could enjoy the following benefits:
- Easier to Get Funding Approvals: CDFIs have more flexibility in their underwriting practices than traditional lenders because of their specific policy goals which can make getting approved for financing easier. They also have free assistance programs (such as business planning, legal services, bookkeeping, etc.) to help you prepare for financing, if needed.
- Potential for Better Rates & Terms: When traditional lenders see risks in a loan application, they often lower the amount they’ll lend, increase the rate, and shorten the repayment term. Even if your business qualifies at a traditional lender, CDFI’s might be able to qualify you for more or give you better rates or terms because they’re designed to accept a little more risk.
- Lender Invested in Your Community: CDFIs are typically community banks and financing institutions. They have specific policy goals to invest directly into your local community which makes them more likely to see value in your project beyond just the bottom line.
- More Than Just Financing: CDFIs also typically have financial and legal services available to help your business at no additional cost.
3. Traditional Small Business Loans for Minorities
Traditional small business loans refers to any type of loan you’re likely to see at national banks like Wells Fargo or Chase, but this isn’t a special carved-out program like SBA or CDFI lending.These banks are normally the first place business owners look when they’re seeking a business loan. In fact, if you’re a banking customer of theirs, you probably get direct mail or calls from your branch’s rep, soliciting their loan product. And for strong borrowers, there can be a lot of advantage to borrowing from a traditional business lender.
When a Traditional Small Business Loan is Right for Minorities
If you have a strong existing relationship with a current bank or lender then a traditional business loan might be the best option for you. Additionally, if you’re a high net worth individual then these traditional lenders may be able to qualify you for financing with better rates and terms than what they typically advertise. On the other hand, if you don’t already have an existing relationship with the lender, or aren’t the strongest loan candidate, this may not be the best option.
There are some good benefits to working with your local bank if you’re a strong borrower. But, if you have a thin credit profile or lack collateral then this may not be the best loan option for you. If you qualify, you can’t beat the loan options that a traditional lender can offer. They can get you financed for programs that include:
- Working Capital
- Commercial Real Estate
- Accounts Receivable Financing
- Business Lines of Credit
- Small Business Credit Cards
Benefits of a Traditional Small Business Loan for Minorities
A private lender offering traditional small business loans can give you a lot of great benefits, which include:
- Use of Your Existing Banking Relationship: It can be beneficial to use the same bank for all of your financial needs. They may be able to offer you special rates and loan terms that aren’t typically available with other financing if they already have your depository or other banking business.
- Less Paperwork: Whenever a government organization, like the SBA, is involved in your financing process you’re likely going to have to endure much more paperwork. An SBA loan, for example, requires extra SBA forms that must be filled out during the loan process. Any extra paperwork requirements adds time to the length of the application process, and takes your time away from your business.
- Use of Collateralization: If you’re not a prime borrower but you have sufficient collateral that is worth more than what you’re borrowing then a traditional loan from a private lender may overlook your lack of other qualifications.
Alternative Business Loans for Minorities
It’s important to remember that while there may not be a lot of loans specific to minorities, all loans that are available to other borrowers are open to minority owned businesses as well. The loans discussed in this article can be difficult to qualify for and require a lengthy (30 – 90 days) approval and funding process. If this is you then there are other options that may be able to help.
Loans with less qualifications or faster funding times can be found by looking for a short term business loan or a peer to peer small business loan. Also, if you’re participating in the SBA 8a Business Development Program, which can help minority owned businesses obtain government contracts, AR financing or invoice factoring may be a natural fit for you.
Other Financial Resources for Small Businesses & Minorities
As discussed above, there aren’t many loan programs designed specifically for minorities. However, there are plenty of other resources aimed at helping minorities get financed and build a successful business. These resources range from being able to help you set your business up to getting financing you need through a grant.
If you want to qualify for many these resources you’ll have to first be a certified minority business owner. You can get certified through government approved non-profit organizations like the National Minority Supplier Development Council or the Minority Chamber of Commerce.
The small business resources for minorities listed below fall into three main categories:
- Government Backed Resources
- Non-Profit Organizational Resources
- Small Business Grants for Minorities
Government Backed Resources
MBDA Business Centers
The U.S. Department of Commerce created the Minority Business Development Agency (MBDA) to help minorities enter the path of entrepreneurship for the purpose of growing the economy and building jobs. The MBDA operates Business Centers all over the country that help minorities start and grow their businesses. They can refer you to local sources of financing and are typically located in areas with larger minority populations.
SBA 8(a) Business Development Program
The SBA offers a business development program that assists small businesses that are owned and controlled (at least 51% of the business) by socially or economically disadvantaged individuals. The program helps minorities get business loans through the SBA 7a loan program, gain access to government contracting, and find the help of an experienced mentor.
The SBA also has small business development centers across the country to provide assistance to aspiring entrepreneurs and small businesses. These services include free business consulting, low-cost training services, and 8(a) business development program support.
BusinessUSA
This article is not an exhaustive list of all government resources. Some states have programs designed to help minority business owners. A good place to start your research is the government backed website BusinessUSA. They provide useful information through a search tool to help you find various government financing resources. Many of these resources are helpful to minorities looking for financing or trying to grow their business.
SCORE
The SBA funds SCORE, which provides small business counseling services for free or at a low-cost. This is not a resource that is exclusive to minorities, but they can help you find the right resources designed specifically to help minority owned businesses. These resources may include mentoring, live webinars, training workshops and materials, or more. You can find the nearest SCORE office here.
Non-Profit Organizational Resources
VEDC
Valley Economic Development Centers (VEDC) is a non-profit organization that has partnered with various banking and other financial partners to offer specific financing opportunities for minority populations. One example is the National African-American Small Business Loan Fund which assists African American entrepreneurs in growing and sustaining businesses.
Minority Chamber of Commerce
The Minority Chamber of Commerce (MCC) aims to provide business education, training, networking, and to facilitate trade worldwide. MCC can help you get certified as a minority owned business and they can help you get access to government contracts set aside for minorities.
Operation HOPE
The Hope Small Business Empowerment Program helps aspiring entrepreneurs from low-wealth neighborhoods build businesses in their communities. They have partnerships with over 25 direct lenders nationwide to help you gain access to a wide range of loan options. They also offer business training and other financial services.
Small Business Grants for Minorities
There are a number of grants available to minorities to fund small businesses. Grants are a way for you to get funds into your business without having to pay anything back like you would with a loan. You can find and apply to grant programs through the government’s online database, or you can check out our article on minority owned business grants.
Bottom Line
Small business loans for minorities are hard to find, and most advertised loans are just traditional financing in disguise. Using a CDFI is a great option for minorities in disadvantaged areas, or who are less than prime borrowers, find access to financing they can’t find elsewhere. However, the best small business loans for minorities are likely going to be SBA loans. Strong borrowers will typically find the best terms and lowest rates with an SBA backed loan.
To qualify for an SBA loan you’re going to need to have 2+ years of business operational history, a credit score of 680+, and at least $120,000 of annual business revenue. If this is you then SmartBiz can help you get funded for up to $350,000 in working capital, or $5,000,000 for commercial real estate within 30 days. You can get prequalified today in a matter of minutes.
Tiffany C. Wright
Marc, thank you for sharing this information about the 7a program, which often has a real estate component. Except in a few states, businesses approach the banks, not the SBA. Because banks are the loan originators, it would be interesting to see the breakdown by lender. It would also be interesting to see the breakdown for the SBA express loans, a loan program with much smaller loan values, and how the minority business breakdown for express loans compares to that for 7a loans.
Tiffany C. Wright
The Funding Is Out There!
Marc Prosser
Hi Tiffany, That information would be interesting to review. Is that information available or public? Where would one look for the data that you suggest?
However, the numbers for lending to women, black and hispanics is so bad, that I fairly confident that the problem is not localized with a few institutions buy a systemic problem that would need to be addressed by the SBA.
Best, Marc
Herb Lawrence
Nice article Marc thanks for sharing that data. You are absolutely correct, the SBA’s guaranty programs require a bank, credit union or some other economic development lender to submit their request to them. The SBA has no direct loan programs (other than their disaster loans) so if a lender does not submit… the SBA can’t provide. The SBA should actually be commended for trying to roll out programs to encourage lenders to make loans to minorities, rural businesses, start-ups etc. but there is only so much they can do.
Marc Prosser
Thanks Herb for your comment. How would you recommend that Congress, the President, or the SBA improve the access to capital for minorities and women?