Business Loans For Minority Business Owners: How To Get One
Women and minority-owned businesses are vital to our economy. In the past decade alone, these businesses made a huge impact on our nation's economy and touched the lives of many more than ever before. However, women and minority-owned businesses struggle receiving business loans. How is this possible?
According to a study by The Business Journals, the number of minority-owned businesses surpassed the 10 million mark in 2017. These establishments employ more than 6 million Americans and generate over $1.8 trillion in revenue annually.
But despite this tremendous growth, these businesses face a major hurdle-access to loans. The National Association of Women Business Owners (NAWBO) reports that women and minority-owned businesses are less likely to get funding. And when they do, they get low amounts with high-interest rates. But all is not lost.
A growing number of governments, organizations, and private entities are offering programs aimed at providing loans for minority business owners. So if you're looking for them, here are some of the best options to consider.
5 Best Loans For Minority-Owned Businesses
1. SBA Loans The U.S. Small Business Administration (SBA) is a federal agency created to help small businesses grow. They guarantee loans offered by several lenders to meet the needs of small businesses. Some of these loans include:
SBA 7(a) Loans SBA 7(a) loans are not designed specifically for minorities. Any small business owner can apply for the funding. However, a third of the loans go to minority-owned businesses.
You can qualify for up to $5 million with a repayment term of between 10 and 25 years. This is a good option for entrepreneurs looking for large investments that attract low-interest rates.
SBA Community Advantage Loans The Community Advantage Loan Program aims to meet the funding needs of women, veterans, and minority-owned businesses. The program encourages lenders to provide loans of up to $250,000 to these businesses by guaranteeing up to 85% of the amount.
Through this initiative, the SBA aims to assist business owners who might not access traditional loans. Although you have to demonstrate the ability to pay back the loan, you don't need collateral to qualify.
SBA Microloan Program The SBA microloan program is perfect for entrepreneurs looking for loans of $50,000 or less. The federal body avails these loans through local nonprofit lenders serving minorities and underserved business owners.
2. Nonprofit Loans Several nonprofit lenders provide loans for minority-owned businesses. Most of them target minorities facing difficulties accessing funds through traditional channels. For example, Accion, an international lending organization offers loans of up to $1 million in the U.S. Kiva is another nonprofit offering up to $10,000 loans to small business owners.
3. Union Bank Diversity Lending Program Union Bank is another body that offers loans tailored to minorities. They provide business loans and lines of credit with less stringent measures than traditional loans. For instance, their loan products have variable or fixed interest rates for businesses looking for up to $2.5 million.
4. Business Center For New Americans (BCNA) The BCNA helps minority entrepreneurs particularly refugees, women, and immigrants who have been turned down from conventional financing options. They provide low and fix-interest loans for minority-owned businesses that must be repaid between 6 and 3 years.
5. U.S Department of Agriculture Business Loans (USDA) USDA targets minority-owned businesses located in rural areas or a town with less than 50,000 residents. The Department of Agriculture guarantees loans of up to $25 million that can be used for various businesses, such as working capital, debt refinancing, real estate, and expansion. Other business loans and programs to consider include:
● Business consortium loans
● SBA 8(a) Business Development Programs
How To Get Business Loans For Minority Business Owners Knowing what loans to apply for is just a part of the puzzle. Getting your application approved can be an uphill task if you don't have all your ducks in a row.
And to increase your chances of success, here are five tips to follow:
Start The Process Early You can't walk into a financial institution, fill out an application, and leave with the funds. The approval process usually takes several weeks to unfold. As such, it's wise to start the process as soon as possible. Don't wait until you need the money.
Work On Your Credit History Most lenders will look at your creditworthiness when determining your risk level. If this part of the process gives you sleepless nights, find ways to improve your credit score. Credit ratings are usually made up of the following indicators: Credit inquiries (10%), credit age (15%), credit utilization (30%), payment history (35%), and account mix (10%). Evidently, credit utilization and payment history have a huge impact on your rating. So be sure to use less credit and pay your bills on time to boost your score.
Have A Clear Plan For The Money Lenders want to know how you will use the money. If you give vague or general responses, you increase your chances of getting denied.
Although businesses are different, most loans are used for inventory purchases, capital investments, business expansion, and administrative expenses. Lending institutions will be looking at these when determining the feasibility of your application.
Over-Prepare When looking for small business loans, organizational skills play a vital role. If lenders ask for information, you must be able to provide it on time. Failure to do so might show you're unprepared and high-risk. The surest way to over-prepare is by going through the information requested by the lender.
Have A Support Network Apart from looking for a specific plan, lenders today want to know that you're not a lone ranger. They like to see that you're working and communicating with experts in your field. This shows you fully understand the situation. It can be difficult securing business loans for minority business owners. At Pailor Community, we're focused on helping you succeed. Join the free community to learn more and network with successful entrepreneurs.