A 2021 Guide to Small Business Loans for Minorities

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Minority-owned businesses are businesses in which African Americans hold at least 51% of the ownership, management, and control of the business, Asian Americans, Hasidic Jews, Hispanic Americans, Native Americans, and Pacific Islanders.

Minority business loan requirements may vary between lending institutions and organizations. Certain organizations offer more significant consideration to particular groups, for example, small business loans for minority women, while others, such as the federal government, use a broader definition.

What is a Minority Business?

Minority-owned businesses are businesses in which African Americans hold at least 51% of the ownership, management, and control of the business, Asian Americans, Hasidic Jews, Hispanic Americans, Native Americans, and Pacific Islanders. 

Small Business Loans for Minorities

Minority business owners face a number of challenges that make it more difficult for them to obtain the financing and credit lines they need to open and maintain their businesses. In fact, while minorities make up 40% of the population of the U.S., they only comprise 20% of business owners. According to a 2020 study conducted by the Office of Advocacy of the U.S. Small Business Administration, businesses owned by minorities receive lower financing, are less likely to be approved, and are more likely to be discouraged from applying for funding than non-minority owned businesses. Fortunately, there are several resources available to help minority-owned businesses surmount these obstacles. 

Who is Eligible?

Depending on the lender, the requirements to get approved for a minority business loan are different. Most federal government resources use the term “socially disadvantaged,” which is defined as “those who have been subjected to racial or ethnic prejudice or cultural bias within American society because of their identities as members of groups and without regard to their individual qualities”. The following groups are considered socially disadvantaged: Black Americans, Hispanic Americans, Native Americans, Asian Pacific Americans, and Subcontinent Asian Americans. However, other groups may be included in this list at the discretion of the Small Business Administration (SBA).

The Best Small Business Loans for Minorities

To help you find the best small business loans for your minority-owned and operated business, we have compiled a list of some of the best small business loans, grants, and resources available for minorities in 2021. 

SBA Loans

Over the past two decades, the Small Business Administration has worked with minority groups to create programs that help even the playing field for minority businesses. Small Business Administration (SBA) programs and loans for minority businesses include:

  • SBA Community Advantage: This loan program offers SBA loans for minority-owned businesses in underserved communities. Community advantage loans are capped at $250,000 and are obtained through local lenders who partner with the SBA to offer advantageous loan terms.
  • SBA Microloans: For small business startup loans for minorities or a cash injection during hard times, socially disadvantaged business owners can apply for SBA microloans for amounts up to $50,000. Unlike some secondary lending institutions, the SBA microloans offer low-interest business loans for minorities who may not have the credit for low-interest rates through traditional institutions. Interest rates for SBA microloans are typically between 8% and 13%, with a maximum repayment period of 6 years.
  • SBA 8(a) Business Development: Small businesses who perform services for government agencies can obtain 8(a) certification to help them win bids for government contracts. To qualify, the business must be at least 51% controlled by economically or socially disadvantaged individuals.

In addition to direct loans, the SBA facilitates loans for minority business owners is through partnerships with local and nationwide lending institutions and non-profit organizations.

Other Lending Programs for Minority Business Owners

The SBA is not the only organization to offer assistance to minority business owners. Other programs that benefit disadvantaged business owners include the following:

  • Community Development Financial Institutions (CDFIs): A variety of microlending opportunities for socially disadvantaged business owners are available through Community Development Financial Institutions. The CDFI program is a federally funded project established to encourage financial support for business owners in underfunded communities.
  • Non-profit Loans: Non-profit organizations such as Opportunity FundLiftFundAccion, and Kiva make it their mission to help facilitate low-interest business loans for minority-owned businesses. 
  • Accompany Capital: Accompany Capital, formerly known as the Business Center for New Americans (BCNA), aims to assist immigrants, minorities, and women to obtain small business loans when they are unable to work through more traditional lenders. They offer a variety of small business loans for minorities with bad credit or no business history. 
  • Union Bank Diversity Lending: Union Bank has established a dedicated Business Diversity Lending Program specifically dedicated to providing small business loans below $2.5 million to minority businesses with annual revenue below $20 million.
  • NMSDC Business Consortium Fund: The Business Consortium Fund (BCF) is a loan and grant program certified by the National Minority Supplier Development Council. The program offers credit lines, term loans, grants, and working capital loans to minority-owned businesses. 

Resources and Grants

In addition to small business startup loans for minorities, there are many grant programs and other community resources. Visit your local Small Business Development Center or Minority Business Development Agency to find out about additional grants and resources for minorities in your area. Minorities looking to start new businesses may also benefit from SCORE. This volunteer program connects experienced business owners with individuals who are just beginning to provide mentorship, support, and guidance. 

How to Get a Small Business Loan for Minorities?

Searching for minority loans to start a business can be a daunting and time-consuming task. With hundreds of traditional and non-traditional lending institutions, government agencies, and non-profit lenders, making a reliable comparison can be challenging. Lendio is committed to helping minority small business owners find the perfect loan. We understand that every business faces a different set of challenges. We are aware of the unique difficulties facing today’s minority business owners, which is why we offer personalized services to help you compare terms, apply, and get your funding quickly and efficiently. 

Lendio uses cutting-edge technology, with a user-friendly online application that you can complete in about 15 minutes. Your application goes to Lendio’s network of over 75 vetted lenders, and you can compare the offers from those lenders to find the perfect option for your needs. Once your loan is approved, funds are available quickly, sometimes as soon as 24 hours later. 

Lendio provides a viable option for minority small business owners looking for startup funding or just additional liquidity. To complete your Lendio applications, you’ll need documentation for your credit score, time in business, annual revenue, and available collateral. You can quickly complete your Lendio application online, even if you need additional documentation. Also, Lendio doesn’t charge an application fee. Apply, compare your loan offers, and receive your funds with one easy application.

Minority Business Loans With Bad Credit

One of the significant challenges faced by minority business owners is the racial disparity in credit risk. According to the Office of Advocacy, White- and Asian-owned businesses are 50% more likely than Hispanic-owned companies and more than twice as likely as Black-owned businesses to be considered low risk by financial institutions. This means that minorities have a greater chance of having their applications for financing rejected. A variety of minority startup business loans, microloans, grants, and other resources have been developed through the SBA, secondary lending institutions, and non-profit organizations to mitigate this disparity. 

If you are trying to figure out how to get a minority loan for your business, even with bad credit, take advantage of Lendio’s matching services to find the best minority loans to start a business in 2021. 

The Takeaway

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According to a 2020 study conducted by the Office of Advocacy of the SBA, businesses owned by minorities receive lower financing, are less likely to be approved, and are more likely to be discouraged from applying for funding. Fortunately, there are resources available to help them surmount these obstacles. 

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