The number of businesses in minority communities has grown in the last decade. According to the United States Committee on Small Business and Entrepreneurship, out of the two million businesses started in the United States within the last ten years, 50% were by minority business owners. In addition, minority businesses created 4.7 million jobs, and there are over 4 million minority-owned businesses in the United States.
However, like every other business, minority-owned companies need funding to grow their business or keep their door from closing. For every business, it is crucial to know where to get business loans and the best options available. So, we did the research and came up with the best loans for minority businesses and where to get them. But first, what is a minority-owned business?
What it means to own a minority business
A minority business is one in which the people or persons who control 51% of its interests belong to a particular ethnicity. In the U.S., a company would be classified as a minority business if Hispanics, Blacks, Asian-Indian Sub-continent, Native Americans, Asian-Pacific, or Alaskan Natives own a significant stake.
There are several benefits to starting your business classified as a minority-owned business. For example, you have access to financing that some companies do not. Also, these businesses may qualify for specific government contracts and be eligible for special programs and resources to help them grow and succeed. However, your business must be certified as a minority enterprise to access these opportunities.
Five business loans for minorities
Minority business owners can apply for any of the following loans and business funding options:
SBA Loans for minorities
Small Business Administration (SBA) loans were created to help businesses get the capital they need to expand. The SBA is committed to supporting the growth and development of minority-owned small businesses and entrepreneurs from underserved communities.
There are different types of business loans that minority small business owners can take advantage of; these include the following:
SBA 7(a) Loans: Although this loan is available to any small business owner, it often goes to companies owned by those in minority communities. You can get as much as $5 million with a repayment period of 10 to 25 years. Also, SBA 7(a) loans have low-interest rates, so you don't spend all your profits repaying the loan.
SBA Community Advantage Loans: This loan caters to small businesses in underserved markets, and you can get up to $250,000. However, it would be best to establish your creditworthiness to get this loan.
SBA Microloan Program: This option is for minority businesses that need a $50,000 loan or less. Also, aside from the money, the SBA gives management and technical help to companies that need them.
SBA Business Development Program: Although it is technically not a loan, it provides a certification that gives minority business owners access to federal contracts.
Note that the SBA does not issue direct loans but facilitates loans from approved funders. Also, you must make a 10% to 20% downpayment to secure this loan and have collateral. Finally, getting SBA loans is slow, and you must forfeit personal assets if your business fails to pay back.
Small business grants for minorities
Government agencies primarily give grants, and several grants are available to minority businesses. You can get them from:
Grants.gov: You will find over 1,000 federal grants here, and the website is maintained by the Office of Management and Budget (OMB). You will find grants from the U.S. Department of Commerce here, but you must meet strict guidelines to qualify.
The USDA Rural Business Development Grant: This grant is for regions where minority businesses contribute a lot to economic growth. Consider this option if your business is in a rural area and you need a small loan.
The Coalition to Back Black Businesses: This grant was created by corporations to support minority-owned businesses. Some of these grant sponsors are AIG Foundation, American Express, S&P Global Foundation, etc.
While grants are free money, more is needed to support a business expansion. Also, they are hard to get, time-consuming, and might come with strings attached. It's important to note that these grants have specific eligibility criteria, and businesses must meet certain requirements to qualify for funding. The application process can be competitive and time-consuming, and it's recommended to research and apply for grants that align with your business goals and needs.
Traditional Bank Loans
Traditional banks cater to more than just big businesses. Many of them have loan programs for minority businesses. For example, Union Bank offers loans for minority businesses through its Business Diversity Lending Program.
U.S. Bank also has a program that focuses on Black business owners. One downside of conventional loans is that they have a high-interest rate, and most require a low debt-to-income ratio.
Lines of Credit
With a line of credit, a bank or credit union offers you a certain amount of money as a loan. However, you get the money at different times when you need it, and the cash flow stops when you exceed the maximum amount.
So, a line of credit can be open for months or years, and you pay back the amount agreed upon with interest. One downside of this loan option is that a rise in the interest rate affects you. If interest rates rise before you complete repayment, you will pay the current amount, not what it was when you opened the line of credit.
Also known as merchant cash advances, revenue-based financing involves getting funds from investors in exchange for a percentage of your profits. This option is excellent for minority businesses as your performance determines how much you will pay back at a given time. For example, you can repay MCAs through a percentage of the business's daily credit card sales, which can be helpful for companies that have fluctuating cash flow.
The application process is typically less complicated than traditional bank loans. If you meet the funder's requirements, MCAs are quick and easy to obtain, often in as little as 24 hours. Another benefit of revenue-based financing is that it does not require collateral, which can be a significant advantage for small businesses that do not have assets to pledge as collateral.
It's important to note it's crucial to understand the terms and fees carefully before applying for one. Additionally, working with a reputable and transparent funder would be the best way to avoid any potential fraud or abuse. At One Park Financial, we can help you determine your pre-qualification status in a few hours. You only need to have been in business for more than three months and earn at least $7,500 in monthly revenue.
One Park Financial is committed to helping minority businesses get the funding they need to grow. Our funders do not discriminate against small enterprises and will provide the capital you need, even without a perfect credit score. Please fill out our online form and contact us today for more information.
Disclaimer: The content of this post has been prepared for informational purposes only. It is not intended to provide and should not be relied on for tax, legal, or accounting advice. Consult with your tax, legal, and accounting advisor before engaging in any transaction.