Should You Consider Minority Business Loans?

Written by Banks Editorial Team
4 min. read
Written by Banks Editorial Team
4 min. read

Sponsored By

Many small business owners need extra funds for their companies. Some executives use the proceeds to pay salaries, while others use loans to make investments and acquisitions. A minority business loan can help some business owners access more capital. In addition, the government has several programs designed to help minority business owners gain market share. We’ll focus on minority business loans and if they make sense for your company.

Flexible and Fast Business Loans

What Is Considered a Minority Business Loan?

Unfortunately, minorities have more difficulty obtaining small business loans. Discrimination can block minority-owned businesses from essential funds. Minority business loans serve as a response to this unfair treatment. Businesses can only qualify for these loans if minorities own at least 51% of the company. Each state has different rules regarding which ethnicities count as minorities. These minority groups can qualify for minorities business loans:

  • Black
  • Hispanic
  • Native American 
  • Alaskan Native
  • Asian-Pacific
  • Asian-Indian Subcontinent

You may need to produce a certificate stating that you operate a minority-owned business. 

Business owners of certain ethnicities can obtain financing through minority business loans. We have highlighted some of the popular minority business loans below.

SBA 7(a) Loan Program

Although anyone can apply for this loan, the SBA makes sure a third of these loans go to minority-owned businesses. The U.S. Small Business Administration lets small business owners borrow up to $5 million. Repayment terms vary, but most companies can expect to pay back the loan in 10-25 years. Low-interest rates combined with high loan amounts help minority-owned businesses focus on growth.

SBA Microloan Program

The SBA Microloan Program is open to any business owner, but you won’t get as many funds as an SBA 7(a) loan. The microloan program is optimal for startups that need less than $50,000 in funding. The program also guides business owners in growing their companies and capitalizing on loans.

SBA 8(a) Business Development Program

The development program is not a loan, but receiving a certificate will put you on the shortlist for some loans. The SBA offers this program to socially and economically disadvantaged business owners. From a legal perspective, minority business owners are within those parameters. You must also make less than $250,000 per year and have less than $4 million in assets to qualify for the program. You’ll get access to better loan opportunities in the future, but you’ll also get mentorship in the present. The program has several free mentors and training sessions available.

Business Consortium Fund Loans

While any business owner can access SBA loans, these loans are exclusively for minority-owned businesses. Minority business owners who can’t get any other financing can take out a business consortium fund loan. You can receive up to $50,000, and interest rates won’t exceed the prime rate by more than 3%. While the prime rate fluctuates, you likely won’t pay a double-digit interest rate for these loans. Business owners can pay back the loan within seven years. 

SBA Community Advantage Loans

The Small Business Administration’s Community Advantage Loans provide financing for underserved communities. Borrowers can obtain up to $250,000. The SBA doesn’t require collateral, but you must demonstrate your ability to pay back the loan. Lenders will review your revenue, financial documents, credit, and other information to determine if you can manage the additional debt.

USDA Business Loans

Some minority-owned businesses can qualify for a USDA business loan. Lenders give these loans to business owners who live in rural areas with under 50,000 residents. These loans have competitive interest rates, lengthy terms, and up to $25 million that you can borrow. You will have to put down 10%-20% to obtain one of these loans.

Flexible and Fast Business Loans

Steps to Choose Minority Business Loans and Grants

Creating a plan will help you find the best minority business loans and grants for your objectives. Follow these steps when assessing your choices and taking action.

1. Create a Business Plan

A business plan establishes objectives, opportunities, how you will use the funds, and other elements of your business. A business plan reveals priorities and helps you stay focused. This business plan will help your company’s future outlook and shortlist financing options. You’ll know how much money you need to fund initiatives, and lenders can review your plan.  

Some lenders will require a business plan before giving you a loan. This is because lenders incur risk when they give money to others. They don’t want borrowers to default on loans, and a business plan helps lenders gauge if you can afford the loan and use it effectively.

2. Conduct Research on Minority Business Grants

We have covered several loans, but loans aren’t the only way to receive capital. You can also receive funds through minority business grants. These grants provide you with free money that you don’t have to pay back. You can find minority business grants on platforms like the Minority Business Development Agency (MBDA) and grants.gov, which provides roughly $500 billion in grants each year. If you qualify for a grant, submit an application. Each application can potentially reward your business with free money.

3. Consider the 8(a) Business Development Program

While this program isn’t exclusive to minority-owned businesses, it helps underserved communities. You’ll receive training and a certificate at the end of the program. Business owners who complete the 8(a) program will get access to exclusive financing opportunities.

4. Look for Local Financing Options

Don’t underestimate your local financial institutions and companies. Some organizations, schools, and individuals have loans and grants up for grabs. Grants.gov can help you discover local opportunities. Networking at events and meeting other business owners will also introduce new opportunities. You can ask other business owners about local financing options that work for them. Networking helps beyond financing. You may meet business colleagues and develop strong synergies through networking.

5. Enter Small Business Grant Contests

Small business grant contests allow your company to win extra funds. Many corporations run these contests to support small business owners. For example, FedEx has run an annual small business grant contest for a decade. Winners receive up to $50,000 in grant money and $4,000 worth of FedEx Office print and business services. 

When researching small business grant contests, pay attention to which companies offer quarterly and annual competitions. You can continue applying for grants during every competition. Some companies organizing grant contests may let you win multiple times. Check the rules and qualifications before applying for a grant contest. 

6. Explore Alternative Financing Options

Small business owners thrive on creativity and making adjustments. You can obtain financing options through the avenues we already discussed. However, alternative financing can provide better rates and loan terms. Mulligan Funding provides access to capital for all of your needs, ranging from short-term coverage to long-term investments. 

Mulligan Funding can provide access to capital as you wait for SBA approval. Their loans provide borrowers with money for short-term needs as they await SBA funds with early repayment interest forgiveness incentives so you don’t pay for more than the money you need while you wait. Mulligan Funding offers flexible terms on loan amounts from $5,000 to $2 million. Mulligan Funding doesn’t do any hard credit checks and can have funds available the next day after approval. (1)

Applying for a loan through Mulligan Funding takes very little time. (*) Once you answer a few simple questions, Mulligan Funding will provide you with financing options.

Mulligan Funding

You may also like

Financing helps veterans maintain and grow their small businesses. Discover several business loans which can help improve veteran businesses.
Read more

Advertisement Disclosure

Product name, logo, brands, and other trademarks featured or referred to within Banks.com are the property of their respective trademark holders. This site may be compensated through third party advertisers. The offers that may appear on Banks.com’s website are from companies from which Banks.com may receive compensation. This compensation may influence the selection, appearance, and order of appearance of the offers listed on the website. However, this compensation also facilitates the provision by Banks.com of certain services to you at no charge. The website does not include all financial services companies or all of their available product and service offerings.

Approval and funding speed refer to applications submitted during normal business hours (Monday-Friday, 9 AM – 5 PM PT.) Most approvals happen within a few hours on completed submissions. Delays could occur due to unforeseen circumstances or if additional information or verification is required.

×

Final loan decision may be subject to underwriting by FinWise Bank.

×