Securing capital is no easy task. For minority entrepreneurs, it is even harder. Nearly 30 percent of small business loan applicants were denied or partially funded.
Minorities have even lower approval rates. They are three times more likely to be rejected.
Lenders have become aware of this issue. They have since made huge strides to offer more minority business loans as a result. From 2002 to 2007, the number of minority-owned businesses has increased by 50 percent and that number is only continuing to grow.
If you are a minority entrepreneur, this is a must-read guide to learn more about your financing options.
Traditional Minority Business Loans to Consider
You can go the traditional funding route and look into bank options for minority business lending. However, the requirements tend to be much more limiting and the timeframe for loan approval can be long. Furthermore, the trust level for banks is definitely not high among the general public.
SBA also offers several loans that are friendly to minority business owners, including the SBA 8(a) Business Development Program, the SBA Community Advantage Loans, and the SBA Microloan Program.
Lenders typically run all of these programs and you have to meet specific eligibility requirements. These programs may require you to meet size standards, have a sound business plan, and demonstrate an ability to repay, which is found with many working capital options. Still, if you have bad credit, there are options to help you qualify for a start-up funding loan based on your business plan.
SBA 8(a) Business Development Program
SBA 8(a) Business Development Program is open to everyone but was specifically developed with businesses that are at least 51 percent minority-owned or controlled by a minority. The focus is to help these individuals gain access to the economic mainstream through training, counseling, and marketing assistance. Once you have been accepted into this program, you are more likely to be accepted for an SBA 7(a) loan.
Plus, these loans can be a source of working capital, allowing you to gain the skills necessary to move your business forward and help it to grow.
SBA Community Advantage Loans
SBA Community Advantage Loans targets mission-based lenders, like nonprofit organizations.
This program is helpful for minority entrepreneurs who need access to large capital (but may not qualify for traditional financing).
SBA Microloan Program
Small minority business owners should also consider the SBA Microloan Program. It is designed for entrepreneurs who need small loans and have strong credit.
This option is great for minority owners who need access to working capital but struggle with securing traditional funding. Keep in mind that working with the SBA can give you access to multiple programs and organizations who can help you to make sure that you set up your business for financial success.
Other banks may offer loans specifically geared to minority-owned businesses, so be sure to do your homework by checking with local financial institutions.
Minority Grants AKA Free Money
If you are looking for money with no strings attached, look into grants.
While the application process is more involved than your traditional loan, it is worth it if you do get it. It is free money. These grants can be used to fund equipment or other investments into your business that can help you grow to the next level. Grants can also be specific to various minorities, so do not be quick to assume that you would not qualify.
There are plenty of government grants at the federal and state level, especially those meant to increase the community involvement of minorities and their businesses.
Is Your Credit Score an Issue?
Most traditional lending programs are not friendly to anyone who has a credit score < 650.
If you fall into this category, do not worry! We understand that things happen outside of your control. If so, consider a working capital loan. If you have low credit with a proven, growing business, this may be for you.
So long as you have been in business for four months or more, gross $10,000 per month, you should consider the working capital options that are available for your business. Online financial options are also available to address your working capital needs, even with a low credit score, while helping you with quick funding. It is important to understand what is expected of you with any financial option and its long-term impact on the financial health of your business.
Remember to Do Your Research
There is a growing number of minority business loans to choose from. Always do your research to select the best option for your small business needs.
Feel free to contact us to see what options are best for you!
Combining a high level of personalized service with a cutting-edge lending platform, Formula Funding delivers an unparalleled banking alternative. We offer a fast and efficient option to get your business the critical funding it needs without the red tape. We work with all credit grades, tax liens, judgments, and charge-offs – something unheard of at a traditional bank. Since 2010 over 15,000 small business owners have used our funding sources to grow and expand.