Best Small Business Loans for Minority Entrepreneurs

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While minorities own 29% of all businesses, minority business owners are three times more likely to be declined for a loan than non-minority owners, according to the U.S. Minority Business Development Agency. If those minority business owners are approved, they typically pay higher interest rates on lower loan amounts than do non-minorities. To help minority entrepreneurs get access to capital, we’ve researched and evaluated a variety of loan and financing options below.

Best Business Loans for Bad Credit

When it comes to getting a business loan, your personal credit matters. However, even if your personal credit history isn’t great, there are still funding options available.

Nonprofit Lenders and Microlenders

There are two Small Business Administration (SBA) loan programs that we think can be a good fit for minority business owners with below average credit: the microloan program and the Community Advantage program. Loans from those programs do not come from the SBA directly; rather, the Administration guarantees a portion of each loan made by nonprofit and community partners across the country. The goal of these programs is to provide underserved business owners—such as women, minorities and those in low-income communities—access to capital. In fact, many of these organizations, like the Oregon Association of Minority Entrepreneurs, focus their outreach and lending efforts specifically on minority small business owners.

Under the microloan program, business owners can borrow up to $50,000 for as long as six years. Interest rates on these loans generally fall between 8% and 13%. While each microlender can set their own eligibility criteria, we have found that many are willing to work with borrowers who have personal credit scores that are under 630. For example, Accion, one of the largest SBA microlenders, requires only a 575 credit score to apply for many of its loan products. You can find a full list of microlenders here.

The other program, Community Advantage (CA), offers loan amounts of up to $250,000, and has the same mission-based lending directive as the microloan program. The maximum interest rate you will pay on a CA loan is 6% above the Prime Rate, which is 4.25%, as of this writing. The SBA also promises a turnaround time of five to 10 days on their credit decision, so the application process can be quicker than that of a standard SBA loan. You can find Community Advantage lenders here.

Online Business Loans

Another type of lender to consider is an online or alternative lender. While interest rates will be higher and loan amounts will be lower, these lenders don’t impose the same strict eligibility requirements as banks do, and many can make funds available within a few days.

LenderLoan DetailsMin. Credit ScoreApply for a Loan
Kabbage
  • Loan amount: $2,000 - $150,000
  • APR range: 20.00% - 80.00%
  • Loan terms: 6 or 12 months
NoneApply Now
Fundbox (invoice financing)
  • Loan amount: $100 - $100,000
  • APR range: 13.00% - 60.00%
  • Loan terms: 12 or 24 weeks
NoneApply Now
OnDeck
  • Loan amount: $5,000 - $500,000
  • APR range: 9.30% - 99.70%
  • Loan terms: 3 - 36 months
500Apply Now
Credibly (working capital loan)
  • Loan amount: $5,000 - $250,000
  • APR range: 1.15x - 1.49x
  • Loan terms: 6 - 17 months
500Apply Now
BlueVine (invoice factoring)
  • Loan amount: $20,000 - $5 million
  • APR range: 15.00% - 68.00%
  • Loan terms: Up to 90 days
530Apply Now
QuarterSpot
  • Loan amount: $5,000 - $200,000
  • APR range: 20.00% - 48.00%
  • Loan terms: 9, 12 or 18 months
550Apply Now
SnapCap
  • Loan amount: $5,000 - $600,000
  • APR range: 19.99% - 49.99%
  • Loan terms: 3 - 36 months
550Apply Now
StreetShares
  • Loan amount: $2,000 - $250,000
  • APR range: 8.00% - 39.99%
  • Loan terms: 3 - 36 months
620Apply Now

Best Business Loans for Good Credit

More options exist for borrowers with excellent personal and business credit history. Nevertheless, we recommend borrowers consider their bank or credit union first, as it generally offers the lowest rates, before turning to an alternative lender.

Bank and SBA Loans

Business owners with strong credentials should make their bank their first stop when they need financing. While bank loans are more difficult to obtain and take longer to process, they offer the lowest interest rates, longest terms and largest loan amounts. It pays to develop a relationship with your banker, as that should increase the likelihood you'll be approved with better terms or nonstandard exceptions to your loans. If you don’t already have a bank, we recommend considering a local bank or credit union over a national bank, as regional institutions generally have a greater interest in lending to and working with entrepreneurs in their communities.

Your bank may also make SBA loans, which are another excellent source of funding for small business owners, especially if you are unable to meet your bank’s standard lending requirements. Because the SBA guarantees a portion of the loan, these loans are a little easier to qualify for than a conventional loan. However, they are harder to qualify for than an online loan. Most business owners opt to get a standard SBA 7(a) loan, which can be used for almost any purpose, but the 504 loan program is another option for borrowers who plan to purchase real estate or long-term machinery and equipment.

Online Business Loans

While online business loans usually carry higher interest rates than conventional loans, there are a few lower rate options for borrowers who qualify.

LenderLoan DetailsApply for a Loan
LendingClub
  • Loan amount: $5,000 - $300,000
  • APR range: 7.77% - 35.11%
  • Loan terms: 1 - 5 years
Apply Now
Funding Circle
  • Loan amount: $25,000 - $500,000
  • APR range: 7.35% - 33.00%
  • Loan terms: 6 - 60 months
Apply Now
Fundation
  • Loan amount: $20,000 - $500,000
  • APR range: 7.99% - 29.99%
  • Loan terms: 1 - 4 years
Apply Now
SmartBiz
  • Loan amount: $500,000 - $5 million
  • APR range: 5.85% - 8.95%
  • Loan terms: 25 years
Apply Now
Guidant Financial
  • Loan amount: $75,000 - $5 million
  • APR range: 6.50%
  • Loan terms: 10 years
Apply Now

Best Startup Loans

The two SBA programs we mentioned above (microloans and Community Advantage) are also open to new businesses and startups. We recommend business owners try these options before considering the alternatives listed below.

Bank loans: While it is possible to get a bank loan for a startup, it’s often exceedingly difficult. For many banks to even consider your application, you’ll need to have strong industry experience, stellar credit history, a solid business plan, enough assets to put up as collateral, and sufficient cash to use as a down payment.

Personal savings: Most entrepreneurs dip into their savings to fund their new venture, and while this option isn’t without risk, it’s one of the most common ways business owners start a business. In fact, most lenders will require a cash down payment of at least 10% to approve a loan.

Loan from family or friends: The major downside to getting money from friends or family members is that you’re putting a personal relationship on the line in the event you can’t repay. That said, a loan from family or friends offers more flexibility than a standard loan, since the close connection may mean they're willing to accept reduced or no interest and deferred payments until your business is generating revenue.

Personal loan or credit card: Both of these options only take into account your personal credit history and financial situation, so they are frequently used when business credentials are lacking. However, with this option, getting a large-enough loan with a reasonable interest rate will require good personal credit history and a low debt-to-income ratio. The risk with these options is the possibility of jeopardizing your personal credit history and financial health if your business venture isn’t successful.

Crowdfunding: Both reward-based and equity crowdfunding have gained in popularity in recent years. Reward-based crowdfunding, in which the funders back a product and then receive it as a reward once it's launched, is generally better suited to products and projects that have mass appeal. Examples include watches, luggage or headphones. By contrast, businesses that have been successful with equity crowdfunding run the gamut from those manufacturing consumer products to financial services to agricultural ventures. As the name implies, these require you to give up some equity in your business in exchange for funds.

Other Resources for Minority Business Owners

The U.S. Department of Commerce runs the Minority Business Development Agency (MBDA), which has business centers across the United States. The MBDA can help business owners get access to capital, markets and contracts. They also provide business consulting services, ranging from market feasibility studies to assistance with bid preparation. You can find an MBDA Business Center in your area here.

We also recommend that business owners get in touch with their local SBA office for further assistance. They can answer any questions you have about their loan programs, and the administration partners with a number of local organizations to help business owners get capital or technical and management help. These partners include SCORE, Certified Development Companies, and other nonprofits or community-based organizations. The SBA also operates some offshoot offices, such as Women’s Business Centers and Veteran’s Business Outreach Centers to help business owners with specific needs. You can see a complete list of SBA and SBA-affiliated partner offices here.

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