Business loans for minorities

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    Chris Godfrey

    Page written by Chris Godfrey. Last reviewed on July 11, 2024. Next review due October 1, 2025.

    It’s seldom easy for small and medium-sized organizations to secure a business loan, but for minority-owned businesses, issues such as limited banking history, imperfect credit and unconscious bias can often make the challenge even tougher. Fortunately, a whole raft of business funding options have sprung up in answer to this problem. Read on to learn more about business loans for minorities and how you can secure the funding your organization requires.

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      What is a minority-owned business?

      If your business is at least 51% owned and operated by people of specific ethnicities, it can be classed as minority-owned. The National Minority Supplier Development Council, (NMSDC), defines a minority business owner as an American citizen who identifies as Asian-Indian, Asian-Pacific, Black, Hispanic or Native American. 

      Where can I get a minority business loan?

      Minority business owners may secure a loan from a range of different lenders and choose from a wide variety of loan products. However, note that every lender will have their own borrowing criteria and the sums they will lend and the rates they charge can fluctuate significantly – which is why it makes sense to consider offers from more than one lender before settling on a loan. 

      SBA lenders

      SBA loans can be obtained from banks, credit unions, nonprofits and online lenders who are part of the Small Business Administration (SBA) lender network. Partially backed by the US Government, SBA loans usually come with much lower interest rates and fees than other forms of commercial lending. Although there are many types of SBA loan, SBA 7a, SBA express and SBA microloans may suit the needs of minority business owners best. 

      Online lenders

      Young businesses and minority entrepreneurs with weaker credit may do better with online lenders who tend to have more relaxed rules of qualification. These fintechs and marketplaces will usually give you a ‘yes/no’ much faster than traditional lenders, sometimes in minutes, although borrowers should expect to pay higher interest rates and fees. Online lenders typically offer all the standard loan types as well as specialist business loans, such as equipment financing or invoice financing.

      Nonprofit microlenders

      Many mission-based nonprofit organizations offer microloans to local businesses, often focusing on businesses owned by minority groups, women and veterans. The SBA also offers microloans of up to $50,000 through these nonprofit organizations. 

      Community development financial institutions

      Community development financial institutions, or CDFIs are banks, credit unions and other institutions that provide financial access, including loans, to minorities and other economically disadvantaged communities. For example, the Business Consortium Fund is a CDFI that provides minority business loans from $100,000 to over $1million. Many CDFIs also issue small-business loans for minorities through the SBA microloan program.

      Banks

      Business loans for minorities from national, regional or local banks often come with low-interest rates and fees, but borrowers will usually be faced with strict qualifying rules. Getting approval may be tough for many business owners, especially if their credit history is spotty. 

      Credit unions

      Loans from credit unions can be competitively priced and some special deals for minorities may be on offer. However, you will typically need to be an established business with good credit and a strong financial history to get approval.

      How do I get a minority business loan?

      You can improve your chances of getting approved for a minority business loan by preparing in advance. Key tasks to take care of include:

      Determine your funding needs

      Why do you need the money? Do your homework to accurately calculate how much you need to borrow and what you can afford to repay. Depending on what you need the funds for, it may make sense to include an extra sum for unexpected costs in the sum you request – this is known as a ‘contingency fund’ and is typically calculated as an extra 5% or 10% of the base sum you require. Keep in mind that you will need to present a strong case for funding to secure an LLC business loan and your financial records should support this need. Indicate why you need the sum you are asking for, how the loan will deliver your plan – and critically, how you will pay the loan back.

      Top tip: Increasing the size of your down payment or offering assets that can be used as collateral for the loan can improve your chances of approval.

      Evaluate your credentials

      Every lender will have their unique credential and eligibility requirements, such as time in business, type of business, annual revenues and of course, personal and business credit reports. Unfortunately, it is common for mistakes to occur on credit reports and incorrect information could have an adverse impact on your loan application. Ensure your report information is correct. If there are errors, get them fixed before applying for your loan – and be aware that fixing a credit report can take time and there are no ‘fast credit repairs’ despite the many promises from online ‘credit doctors’ who say they can perform miracles for your score.

      Get certified as a minority-owned business

      A certification stating your business is minority-owned may be required for you to qualify for specific minority business loans or programs. You can get certified through your state, or through the NMSDC. In most cases, you must be able to prove that your business is 51% owned and operated by individuals that meet specific ethnic definitions, although the certification process can vary state by state. Additionally, some programs, such as the SBA 8(a) Program, may require you to renew your business’s certification on an annual basis. 

      Research and compare lenders

      It makes sense to shop around for different loan offers before settling on a lender. You can do this by approaching banks, credit unions and online or other lenders one by one, or you can use the services of a loan marketplace that will introduce you to a choice of loan deals from different lenders. Some marketplace platforms can also give you advice and help you with the application process. This can be especially useful for minority business owners who have never taken out a business loan before. 

      Gather your documentation and apply

      Lenders will need to see bank statements (usually at least 18 months), balance sheet, profit and loss statements, cashflow projections, list of debts, list of assets, customer database, documents that reveal the structure of your business (corporation, LLC, etc.), certificates of good standing, tax returns and more. 

      Make sure you are within the deadline stipulated by the lender before submitting your application and ensure you have provided all the necessary documents and information they require. Keep in mind that processing times can vary enormously, with some providers taking many weeks to arrive at a final decision and disburse their funds. 

      If you need funds in a hurry, you may be eligible for a fast business loan. Start that process here.

      Can minorities with bad credit get a business loan?

      Even if you have bad credit or have been turned down elsewhere, it may still be possible to get the funding you need. Some business loans, including SBA Microloans, are specifically tailored for business borrowers with less than perfect credit, although you should expect to pay higher interest rates and fees. To save time and disappointment, the best way to find out what you may qualify for is to contact Swoop today to confidentially discuss your loan requirements with a bad credit expert.

      What are the alternatives to business loans for minorities?

      Minority business owners who do not qualify for regular business loans don’t have to abandon their big ideas. There may be other ways to secure the funds you need:

      External investors

      If you’re seeking outside investment, there are networks of venture capitalists and angel investors readily available online. 

      Bringing in external investment can give you the cash you need, and it may also deliver a unique and extra set of skills and contacts that can help your organization grow even faster. However, investors will usually want a piece of the action in exchange for their money. This will mean you giving up a share of your ownership and may loosen your overall control of the business. Some investors may also want higher dividends or royalty payments as well as their share of equity. Also note that venture capitalists and angel investors can be very picky about the businesses they choose to back. You could spend many months pursuing one lead after another before you find the right match. 

      Grants

      Business grants are another option for minority business owners. Unlike business loans, the major advantage of this type of funding is that you don’t need to repay the money. However, the downside is that it can be very tough to secure a grant. They are often restricted to specific locations, industries or causes, making it difficult to qualify.

      Five places to find minority business owner grants:

      Crowdfunding

      Available via various online platforms, crowdfunding can bring in large sums if your presentation hits the right spot. Although you will need to be creative to raise big money in small donations from hundreds or even thousands of donors, you do not need to repay the cash if you spend it where you said you would. An eye-catching idea and a powerful pitch is essential to succeed with this funding option.

      Get started with Swoop

      No matter if you’re seeking your first loan or you’re a seasoned borrower, working with business finance experts can make all the difference when applying for funding. Contact Swoop to discuss your borrowing needs, get help with your application and compare business loans for minorities from a choice of lenders. Give your organization the financial boost it deserves. Register with Swoop today.

      Written by

      Chris Godfrey

      Chris is a freelance copywriter and content creator. He has been active in the marketing, advertising, and publishing industries for more than twenty-five years. Writing for Wells Fargo Bank, Visa, Experian, Ebay, Flywire, insurers and pension funds, his words have appeared online and in print to inform, entertain and explain the complex world of US consumer and business finance.

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