Best Small Business Loans for Minority Entrepreneurs

Best Small Business Loans for Minority Entrepreneurs

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Minority business loans can be a critical funding source for minority-owned small businesses to receive the funds they need. Getting funding may be more challenging for minority business owners because of institutional barriers, such as limited banking options, insufficient credit history and implicit bias from lenders.

Read on to learn more about small business loans for minorities, including minority startup business loans. We’ll also explain how to get certified as a minority-owned business with the Small Business Administration (SBA).

Minority business loans

When it comes to small business loans for minorities, there is a wide range of financing opportunities, including funding options for startups.

Small business loans for minorities

The list below includes loans designed to either be minority business loans, or service a significant proportion of minority-owned businesses.

SBA Community Advantage loans

As a part of the SBA’s flagship 7(a) loan, the SBA Community Advantage (CA) loans help small businesses in underserved markets. Under this pilot program, minority-owned businesses can receive up to $250,000 in five to 10 business days.

The Community Advantage loan program could be a good option for startups, as businesses under two years in operation are eligible. CA loans are also open to businesses with a minimum FICO Small Business Scoring Service business credit score of 140, so it could also be an option for businesses with poor credit. Loan terms depend on how you use the funds: Loans for equipment and working capital have up to 10-year terms, while those for real estate have up to 25-year terms. Both have interest rates as high as 9.25%.

Union bank

The Union Bank Diversity Lending program helps businesses that are at least 51% owned, controlled and actively managed by minorities, women or veterans. This minority business loan program has flexible loan types including secured and unsecured, fixed-rate loans with terms of up to 25 years, as well as variable-rate secured and unsecured lines of credit. Only businesses located in Arizona, California, Oregon and Washington can apply.

Business consortium fund loan

The Business Consortium Fund (BCF) is a nonprofit organization and community development financial institution (CDFI). BCF provides financing exclusively for National Minority Supplier Development Council-certified businesses. Loans range from $100,000 to $750,000 with a maximum loan term of five years; interest rates depend on the risk analysis. To qualify, your business must be at least 51% owned and operated by people of color who are U.S. citizens.

Accion Opportunity Fund

Accion Opportunity Fund (AOF) is a nonprofit lender that supports small businesses that advance racial, gender and economic justice. AOF offers loans from $5,000 to $100,000 and interest rates as low as 5.99%. While AOF doesn’t exclusively fund businesses owned by people of color, it notes that around 90% of its clientele is women, people of color or immigrants.

Minority startup business loans

In addition to the funding options above, there are also programs that can offer minority loans. This minority business loan program has flexible loan types including secured, as well as unsecured startup business loans.

SBA microloans

SBA microloans are open to all small businesses, but target underserved markets including low-income borrowers, women and minority entrepreneurs in particular. SBA microloans offer up to $50,000 with seven-year maximum terms and interest rates typically ranging from 6% to 9%. Startups can benefit from microloans, and indeed have: The SBA cites that in 2020, startups received 30% of all microloans issued. To apply, you must provide some type of collateral.

Accompany Capital

Accompany Capital is a business center that empowers immigrants and refugee entrepreneurs to get funding and education in New York City. Accompany Capital offers microloans, small business loans for minorities, credit building loans and revolving lines of credit. The microloan ranges from $500 to $50,000 for terms up to three years. Meanwhile, the small business loan provides up to $250,000 for terms of up to 10 years.

Additional government loans to consider

The federal government offers additional small business loan programs that can help minority businesses depending on their industry and intended use of the loan.

SBA 7(a) loans

SBA 7(a) loans aren’t designated as minority business loans, but they are available to minority businesses owners. You can use SBA 7(a) loans for purposes like real estate, working capital and equipment, among others. 7(a) loans have terms up to 25 years and offer a maximum amount of $5 million. The effective SBA 7(a) loan rate currently ranges from 5.5% to 11.25%, though the SBA sets a maximum based on the prime rate, LIBOR rate or optional peg rate.

USDA business loans

Although the USDA business loans program isn’t specially designated as a minority business loan, this program could be used for minority-owned businesses located in rural communities. The maximum loan amount is $10 million, and maximum terms vary based on the use of funds. For real estate, the term is up to 30 years, up to 15 years for equipment and up to seven years for working capital. The lenders set the interest rates, but similar to SBA 7(a) loans, the USDA will set a maximum rate limit.

Minority small business grants and coaching

Besides loans, there are grants and entrepreneurship coaching or training programs designed for minority-owned small businesses.

Operation Hope Programs

Operation Hope is a nonprofit organization that aims to empower inclusion for low-to-moderate income communities. The One Million Black Business (1MBB) initiative aims to provide Black-owned businesses with mentoring on how to get funding and support on creating a business plan and operating their businesses.

Minority Business Development Agency

The Minority Business Development Agency (MBDA) is the only federal agency specifically dedicated to the success of minority businesses. The MBDA helps business owners find and compete for federal grants.

SBA 8(a) Business Development Program

The SBA 8(a) Business Development Program is neither a grant nor a loan, but a program that allows socially and economically disadvantaged businesses to compete for federal contracts. To qualify, your business must be 51% owned and controlled by U.S. citizens who are socially and economically disadvantaged — this includes Indian tribes, Alaska Native Corporations (ANCs), Community Development Corporations (CDCs) and Native Hawaiian Organizations (NHOs).

How to get minority-owned business certification

To be eligible for the 8(a) Business Development program, you must certify your business as a minority-owned small business through the SBA. To qualify you must meet the following criteria:

  • Be a for-profit small business according to SBA size standards
  • Not previously have participated in the 8(a) program
  • Be at least 51% owned and controlled by U.S. citizens who are members of a socially and economically disadvantaged group
  • Have personal net worth of $750,000 or less, adjusted gross income of $350,000 or less and $6 million or less in assets
  • Demonstrate "good character" to fulfill federal contracts

To certify as a minority-owned business, you’ll need to apply through the SBA at certify.SBA.gov. You’ll also need to submit documents about your business and business owners, such as federal business tax returns, acquisition agreements and agreements of governing relationships.

Minority business loans FAQs

How do I qualify for a minority business loan?

Criteria for a minority business loan varies by the lender. To qualify for the SBA’s 8(a) Business Development program, the SBA requires 51% of the small business to be owned and operated by U.S. citizens that are considered socially and economically disadvantaged.

What can I use a minority business loan for?

Depending on the type of loan and loan amount, you can use a minority business loan for working capital, real estate, equipment or initial seed money. Minority business loans are available for startups and established small businesses.

Do I need a business plan?

Depending on the specific program or organization, you may need a business plan to qualify for a minority business loan. Updating your business plan may help be eligible for specific grant funding as well.

Can I get a minority business loan with bad credit?

Possibly. Credit requirements vary depending on the lender. The SBA Community Advantage loan program, for example, is open to applicants with a minimum FICO Small Business Scoring Service business credit score of 140.

Are there small business grants for minorities?

Small business grants for minorities are available from organizations such as Operation Hope. The MBDA provides guidance on how to apply for federal grants.

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