UK
IRE
AU
CA
US
ZAExpert financial copywriter
Minority-owned businesses are on the rise. There are 9.7 million minority-owned firms in the United States, according to the latest data from the Minority Business Development Agency. Those firms bring in 9.43 million jobs and contribute $1.43 trillion to the economy.
Entrepreneurs of color are also driving new business creation. In 2019, only 3% of new business owners were Black or African American, according to 2022 data from Gusto; in 2021, that number tripled, rising to 9%.
Despite their growth, though, minority-owned businesses face challenges accessing financing. The Federal Reserve’s 2022 Small Business Credit Survey showed that only 15% of Asian business owners, 16% of Black business owners and 19% of Hispanic owners received the full amount of financing they applied for compared to 35% of white business owners.
However, there are plenty of financing options available to minority business owners, including popular loans from the Small Business Administration (SBA). Keep reading to learn more about the best SBA loans for minority business owners, other helpful financing options and resources for growing a business as a minority.
Page written by Paige Smith. Last reviewed on August 12, 2024. Next review due October 1, 2026.
A minority-owned business is a business that’s at least 51% owned and operated by someone belonging to a minority group. According to the National Minority Supplier Development Council (NMSDC), a minority is a US citizen who’s at least one quarter African-American or Black, Hispanic or Latin American, Asian-American, Asian-Pacific or Native American. You can see which countries and regions of origin fall into these categories on NMSDC’s site.
Becoming a certified minority-owned business, also called an MBE, can give your operation a distinct advantage. You might be eligible for government contracts, business grants and financing opportunities available only to MBEs.
According to the NMSDC, the most common national certifier of MBEs, your business must be a for-profit enterprise located in the US or its territories, and must be at least 51% owned, operated and controlled by a minority group member with US citizenship.
To apply for MBE certification—or renew your certification—you’ll need to follow the steps on NMSDC’s website, gather and upload certain business documents, pay an application fee and do an interview.
SBA loans are backed by the SBA and administered through certified lenders. All of the SBA’s loans are available to minority business owners as long as you meet the eligibility requirements.
To meet the SBA’s loan eligibility requirements, your business must:
Keep in mind that SBA-certified lenders don’t require collateral for business loans under $25,000. However, for business loans over $25,000, you need to provide collateral in the form of business assets or a personal guarantee.
The SBA requires a personal guarantee for loans when you own 20% or more of your business. Signing a personal guarantee means you’re responsible for repaying your business’s debt if your business defaults on the loan. In that case, personal assets like your car and house are at risk.
The best SBA loans for minority business owners include the standard 7(a) loan, the SBA microloan, the Express Loan and the Community Advantage Loan. Below, we’ll review each option in detail.
The standard SBA 7(a) loan is a term loan that gives eligible business owners up to $5 million to purchase real estate, refinance debt and use as working capital. You can also use a 7(a) loan to construct a new building, renovate an existing space or purchase equipment, machinery, furniture, fixtures and supplies.
In addition to their versatility, SBA 7(a) loans are known for having favorable loan terms. Interest rates range from 5-11%, and repayment periods are between 10 and 25 years, depending on what you use your loan for.
To qualify for a 7(a) loan, your business must meet the SBA’s small business size guidelines. Your credit score should also be strong; lenders usually look for scores of 640 or above.
True to its name, an SBA microloan is a small, short-term business loan. The SBA offers microloans of up to $50,000 to business owners who need a small injection of capital. You can use the funds for startup expenses, furniture, machinery, supplies, inventory and working capital.
The average microloan is $13,000 with interest rates ranging from 8-13%. Repayment periods vary, but the maximum repayment term for a microloan is six years.
Eligibility requirements for SBA microloans depend on the SBA-approved intermediary lender you work with. The good news is that you don’t need excellent credit to qualify for a microloan. However, you might have to put down some form of collateral and sign a personal guarantee.
If you need funds on an accelerated timeline, the SBA Express promises to get back to you within 36 hours—and generally delivers funding within a month. With the SBA Express, you can get up to $500,000 for either a term loan or a business line of credit. Like the 7(a) loan, you can use Express funds for a variety of purposes, including business expansion, working capital, debt refinancing and equipment and real estate purchases.
Interest rates for Express loans are generally 4.5-6.5% above the current prime rate, depending on the loan amount you receive. As an example, in March 2023 the prime rate was a historical high at 8%, which would make the Express loan interest rate roughly 12.5%.
Repayment periods for lines of credit are up to seven years, and between 10 and 25 years for term loans. Qualification requirements for Express loans are similar to 7(a) loans, but might vary depending on the lender.
The SBA Community Advantage loan program is a temporary program (set to expire on September 30, 2024) designed to support small businesses in underserved markets. That can include minority businesses in low-income communities, veteran-owned businesses and startups, to name a few.
The loans are administered through community-based, mission-focused lenders like certified development companies (CDCs) and microloan intermediaries. You can get up to $350,000 as a term loan or line of credit to improve your business. That includes putting the funds toward renovation, expansion, startup expenses, machinery and equipment or working capital.
Interest rates range from 4.5-6.5% above the prime rate, and repayment periods range from 10 to 25 years. To qualify, you have to meet the 7(a) loan small business requirements as well as your lender’s individual requirements. You typically need a credit score of at least 600, plus proof of strong business financials.
In addition to loans, the SBA also has unique resources for minority-owned businesses.
The 8(a) Business Development Program helps socially and economically disadvantaged businesses grow by offering technical, financial and management assistance. As part of the program, you can compete for and receive set-aside and sole-source work contracts from the federal government, and receive one-on-one mentorship, management and business development training and support.
To qualify for the program—which has a nine-year term—you must:
To apply for 8(a) program certification, check out the SBA’s list of steps.
Similar to the 8(a) program, the SBA HUBZone Program supports small businesses in historically underutilized business zones. If you’re a HUBZone-certified business, you’re eligible to compete for and receive federal set-aside work contracts.
To qualify for the HUBZone program, you have to:
Keep in mind that the HUBZone map is changing on July 1, 2023, so it’s important to check here for updates. You can also find more qualification criteria here.
The SBA has a wealth of programs and offices for minority business owners to meet mentors, gain technical assistance, procure work contracts and connect with other business owners. Check out these resources:
Here are three flexible financing options to consider as a minority business owner:
A business line of credit is a great way to cover ongoing operating expenses, short-term cash flow gaps or emergency costs. A line of credit gives you access to a set amount of credit, which can range from a few thousand dollars to over $100,000.
Like a credit card, you can make a minimum monthly payment each month and incur interest, or pay off your credit balance in full to avoid interest fees. Interest rates are highly variable, ranging on average from 8% to 80%, depending on the lender.
Business loans from online lenders usually offer faster funding and more flexible qualification requirements than loans from banks or the SBA. You might not need as many documents to apply, nor do you necessarily need excellent credit. Loan amounts, repayment periods and terms vary from lender to lender, but average interest rates range from 11-44%.
If you want debt-free money to invest in your operation, consider a business grant geared toward minority business owners. Grants are a great way to secure no-strings-attached capital, but they can be competitive and hard to find. Start by checking Grants.gov for federal grants you might qualify for, then expand your search by looking at nonprofit organizations and professional associations.
Here are some other options to consider:
If you’re in the process of looking for financing, these steps can help increase your chances of success:
Need help sifting through your funding options? Swoop can help you find the financing solution that works best for your business. All you have to do is register your operation, and you’ll get access to one-on-one financing support and dozens of financing comparisons. Join Swoop today.
Written by
Paige Smith is a content marketing writer specializing in the intersection of business, finance, and tech. Paige regularly features on a number of B2B finance and fintech websites including Fundera, Funding Circle, Fundbox and Nav, amongst others.
Swoop promise
At Swoop we want to make it easy for SMEs to understand the sometimes overwhelming world of business finance and insurance. Our goal is simple – to distill complex topics, unravel jargon, offer transparent and impartial information, and empower businesses to make smart financial decisions with confidence.
Find out more about Swoop’s editorial principles by reading our editorial policy.
Minority loans are loans designed specifically for minority business owners. You can find minority loans through the SBA, certain non-profit organizations, government organizations and community development financial institutions (CDFIs).
However, minority business owners can also apply for financing through traditional lenders and financial institutions.
Yes, there are two primary benefits of being a minority-owned business. First, you have access to certain funding opportunities and government contracts non-minority business owners don’t have access to. Second, as a certified minority-owned business, you can appeal to customers and communities who identify with or want to support minority business owners.
It can be harder for minority business owners to secure financing for a few key reasons. Minority business owners might have insufficient credit due to historically being denied financing opportunities, or they might not have a significant banking history. The racial wealth gap also means that minority business owners might have fewer or less expensive assets to use as collateral when getting a loan. Finally, unconscious racial and ethnic bias in lending can also play a big role.
The SBA defines a minority business as a business that is at least 51% owned and operated by one or more minority individuals. Minorities include groups that are Black or African American, Asian Pacific, Asian American, Hispanic and Native American.
Swoop was actually very helpful in helping us get our initial fundraising in place. Swoop was able to connect us with investors, with grant financing options and debt financing options.
Founder, SingleKey
Pedja was amazing. Super supportive, understanding of our needs and wasn't pushy at all. We've been going back and forth with Swoop for over a year inquiring about different financing options and they were patient until we were ready!
F45 Multi-studio owner
Daire made it happen! There is no doubt that Swoop sped up the process and found lenders that worked to our time scale rather than the other way round
Joint owner, F45 Virginia
Swoop was actually very helpful in helping us get our initial fundraising in place. Swoop was able to connect us with investors, with grant financing options and debt financing options.
Founder, SingleKey
Pedja was amazing. Super supportive, understanding of our needs and wasn't pushy at all. We've been going back and forth with Swoop for over a year inquiring about different financing options and they were patient until we were ready!
F45 Multi-studio owner
Daire made it happen! There is no doubt that Swoop sped up the process and found lenders that worked to our time scale rather than the other way round
Joint owner, F45 Virginia
Swoop was actually very helpful in helping us get our initial fundraising in place. Swoop was able to connect us with investors, with grant financing options and debt financing options.
Founder, SingleKey
yet? Register here!