Data from the U.S. Census Bureau revealed nearly 70% of minority-owned businesses that applied for business financing in 2020 needed the money to cover the expenses required to run the business, compared to 53% of nonminority businesses that applied for business financing in 2020.
How To Apply for a Minority Small Business Loan
When looking for a loan, know your loan preferences and determine what will work well for your business. Determine how much money your business needs and whether you would prefer a short-term loan, which will garner less interest, or a long-term loan, which will allow you to take out larger amounts and pay over a longer period of time. Also understand the conditions of the loan and make sure your business can afford the monthly payments. To increase the likelihood that you qualify for a small business loan, you should:
Have a business plan Build up your credit score (both personal and business credit) Do research to find out which loans are the best fit for your business needs Calculate your startup costs and come up with a break-even analysis Have all relevant business documents Make sure you understand loan terms Get certified as a minority-owned business
As you search for financing, you may find that some programs geared toward minorities are more generalized, while others are more specific. For example, the Native American Business Development Institute (NABDI) offers grants to help tribes and tribal organizations decide whether a business or economic opportunity is worth pursuing. The grant funds feasibility studies and business plans, which can help tribes get the financial backing they need from potential lenders and investors. There are many different programs that may be able to help you start or grow your business.
Best Types of Loans for Minority-Owned Businesses
There are some programs specifically for minorities, since minority entrepreneurs often have more difficulty obtaining loans.
National Minority Supplier Development Council and Business Consortium Fund
The National Minority Supplier Development Council (NMSDC) is an organization that works to help minority business enterprises (MBEs) grow. The organization provides certification for MBEs and provides connections to other businesses. NMSDC’s Business Consortium Fund provides loan programs and consulting services exclusively for certified MBEs.v
Minority Business Development Agency
The Minority Business Development Agency (MBDA) is operated by the U.S. Department of Commerce and aims to help minority-owned businesses throughout all industries. The MBDA offers a variety of resources and connects MBEs to private lenders, including investors, banks, and mutual funds.
USDA’s Farm Service Agency
The Farm Service Agency, which is part of the U.S. Department of Agriculture (USDA), works to ensure that a portion of its loans go to those in underserved communities. This includes its microloans, youth loans, direct operating, direct farm ownership, and guaranteed loans.
Union Bank
Union Bank offers loans made specifically for underserved communities. The Business Diversity Lending Program provides fixed-rate, unsecured or secured term loans to businesses that are owned by minorities, women, or veterans.
Programs From Large Banks
Many major banks have recently implemented programs for small businesses owned by minorities. US Bank has started a pilot program that connects Black business owners with advisors who can help them access business development opportunities and connect them with resources they may need for their business. Between 2022 and 2025, PNC plans to provide $26.5 billion in loans to small LMI, minority-, women-, and veteran-owned businesses. Bank of America has launched a Small Business Down Payment Grant Program to help women and minority business owners purchase commercial real estate. Other large banks have also recently made large contributions and partnered with minority depository institutions to help promote the growth of businesses in underserved communities.
Other Loans and Funding Opportunities for Minorities
MBE Connect and the U.S. Minority Chamber of Commerce are two other organizations that can connect minority small business owners with the resources they need. There are also programs designed for specific minority groups. Those programs include:
National African-American Small Business Loan FundAccompany Capital loans, formerly known as Business Center for New AmericansIndian Loan Guaranty, Insurance, and Interest Subsidy ProgramAsian Women Giving CircleLatino Community Foundation
SBA Loans and Programs for Minorities Who Own Businesses
The U.S. Small Business Administration (SBA) backs several types of loans to assist small business owners. Borrowers must work with lenders because the SBA does not directly provide loans unless the business is recovering from a declared disaster. The SBA offers a lender match program to allow small businesses to connect with these lenders. The SBA also provides contracting certifications and business development programs for minority-owned businesses through the 8(a) Business Development program, the HUBZone program, and the SBA Mentor-Protégé program.
7(a) Loans
The 7(a) loan program is guaranteed by the SBA and provides a maximum amount of $5 million. These loans can be used for working capital, refinancing business debt, business acquisition, real estate, and other purchases needed to run the business.
Microloans
The SBA microloan program provides loans of up to $50,000. These loans can be used to help expand or improve businesses. Some things businesses might use the proceeds for include inventory, equipment, and working capital. Microloans cannot be used for real estate or to pay off existing debts.
Community Advantage Program
The Community Advantage Program connects small businesses with lenders who are focused on lending to new businesses, businesses owned by veterans, and businesses in underserved communities, including low- to moderate-income communities.
Other Loan and Funding Options
Minority small business owners sometimes have trouble getting access to traditional bank loans. A 2021 report found that 71% of white-owned companies who applied for PPP loans through large banks received all the funding they requested, while only 41% of Black-owned companies received the full funding they requested.
Grants
Small business owners can find a variety of grants through www.grants.gov, as well as through local initiatives. They may also find specific programs for their industry from various organizations. Some grants for minority business owners include Galaxy Grants from Galaxy of Stars, NAACP grants for Black-owned small businesses, and the Community Development Financial Institutions Fund’s Native Initiatives.
Alternative Lenders
If you can’t get a traditional loan from the SBA or a bank, consider alternative or online lenders. Alternative lenders provide loans that are similar to those of a traditional bank but generally are more lenient and are processed much faster. These loans may come with higher interest rates than a traditional loan would, since they typically are used by small businesses who haven’t been approved for a traditional loan.
The Bottom Line
You may want to get your business certified as a minority-owned business. While you can still apply for ordinary grants and loans, there are a variety of different programs and initiatives that work to help small business owners in underserved communities. Look into the available programs and see if any of them might be a good fit for your business.
