Minority businesses today and more than ever, have and keep providing the national economy with the fuel it needs to keep going. According to the Minority Business Development Agency, there are currently more than 8 million minority-owned firms in the U.S. Together, they generate annual gross receipt sales totaling close to $1.4 trillion.
So why is it, that even if their contributions are remarkable, that they have to work twice as hard as the average small business in terms of revenue and access to capital?
Here's a little background info on the situation and most importantly, useful tips on how to apply for small business funding for minority owned business.
Make sure you fall under the Minority Owned Business Category.
First thing first. Check if your small business falls under this category.
"Minority" means that you are: African- American (or Black), Hispanic, Native-American, Asian, or that you belong to another racial or ethnic group. To get access to small business loans or funding as a minority the National Minority Supplier Development Council (NMSDC), asks that your company is at least 51% minority owned, operated, and controlled.
Also, be on the lookout for the term “socially disadvantaged”. A term widely used by Federal programs and financial institutions, meaning, “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.”
Sometimes “minority” or “socially disadvantaged” funding will be specifically destined to minority groups, depending on their social status, ethnicity, and/or race.
Check which option is right for you:
In order to understand how to apply for small business loans or funding options for minority owned businesses, it's important to understand which lender or funding option is right for you. Here are some you should consider:
Loans from Community Development Financial Institutions (CDFIs): These organizations provide financial products and services to individuals and businesses who are often underserved by traditional financial institutions. They may include banks, credit unions, loan funds, and venture capital funds. There are over 1100 certified CDFIs around the U.S. and they often focus on low-income or rural communities.
SBA loans: The U.S. Small Business Administration provides several options for small businesses, including microloans and other types of funding programs.
Their average microloan goes to about $13,000 and up to $50,000. It's important that you know beforehand, that most of their programs, including the SBA 7(a) loan, require a high credit score and business collateral.
If your business is 51% owned and controlled by U.S. citizens who meet the definitions of being a disadvantaged group you might want to consider applying for the SBA 8(a) program. The SBA has recently pledged to award 5% of government contracts to minority owned businesses. But their 2019 loan records show that they still have a long way to go. In fact, last year, 23% of 7(a) loan proceeds went to Asian-owned businesses, 7% to Hispanic-owned businesses, only 3% to Black-owned businesses, and 1% to American Indian-owned businesses.
As stated previously, government and economic organizations, especially CDFIs and SBA programs generally do not seek out applicants that are considered a high credit risk. This means that minority-owned businesses with a bad credit score may have to consider small business loan minority programs or alternative funding sources like Merchant Cash Advances, instead.
Alternative Funding Sources
Alternative funding sources provide working capital and other forms of financing for small and medium-sized businesses whose owners need to access funds quickly and/or don’t qualify for more traditional loans from a bank. Business owners don’t need to have perfect credit scores to be approved for funding. Plus, the application process for alternative funding is likely to take minutes, not months. And the types of funding available, such as merchant cash advances- are designed to meet the needs of smaller businesses. Once approved – you often can access the funding faster – in days rather than the month or more that it takes to access funds from a traditional bank loan.
Or you can easily check if you qualify for small business funding in a couple of minutes from your home or business. One Park Financial works to help owners of small and mid-sized businesses access the funding that meets their needs. Established in 2010 and founded by entrepreneurs, One Park Financial understands the challenges associated with small business loans and their need for working capital. Visit oneparkfinancial.com or call 855.218.8819 and connect with a funding expert to discover the options that make sense for you and your business.