Best Small-Business Loans for Minorities

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Randa Kriss
By Randa Kriss 
Updated
Edited by Sally Lauckner

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Minority business loans are available from many lenders. But getting funding from a traditional financial institution may be tougher for minority business owners due to issues like unconscious bias, insufficient credit and limited banking history.

More success may be possible with alternative sources, such as nonprofit organizations and online lenders. These lenders tend to have flexible qualification requirements — and some even offer small-business loans designed to assist traditionally underserved entrepreneurs. 

Below, compare some of the best business loans for minority business owners, plus learn more about other financing options and resources, including grants and certifications.

Best small-business loans for minorities

Our pick for SBA loans for minorities

SBA 7(a) loans offer competitive rates and terms and can be used for a variety of funding needs. In fiscal year 2022, minority business owners received over $8.3 billion in 7(a) loans.

SBA 7(a) loan

SBA 7(a) loan
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on U.S. Small Business Administration's website

7(a) loans are issued by private lenders and backed by the SBA. They offer long repayment terms and low interest rates.

Maximum loan amount: $5 million.

Minimum credit score: 650.

Estimated APR: 11.5% to 15% (depending on your creditworthiness and business financials).

Pros

  • Available as a term loan or line of credit.

  • Interest rates are capped.

  • Long repayment terms available.

Cons

  • Personal guarantee is required.

  • Collateral is typically required.

  • Longer processing times than online lenders.

Our pick for fast small-business loans for minorities

OnDeck offers quick short-term loans that can fund as quickly as the same day. These loans are good for specific, one-time purchases.

OnDeck - Online term loan

OnDeck - Online term loan
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on OnDeck's website

OnDeck offers a fast term loan for small-business owners with less-than-stellar credit who want to expand.

Maximum loan amount: $250,000.

Minimum credit score: 625.

Estimated APR: 35.4% to 99.9% (depending on your creditworthiness and business financials).

Pros

  • Cash can be available within the same business day.

  • Requires low minimum credit score.

  • Less paperwork than most lenders.

Cons

  • Fixed-fee structure means early repayment will not save interest.

  • Requires frequent (daily or weekly) repayments.

  • Requires business lien and personal guarantee.

Our pick for small-business startup loans for minorities

A business line of credit may be available if you have at least six months in business. You only pay interest on the funds you draw from the credit line, giving you more flexibility than a term loan.

Fundbox - Line of credit

Fundbox - Line of credit
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Fundbox offers a business line of credit to fill a cash flow gap, and qualifying is easier than with other lenders.

Maximum loan amount: $150,000.

Minimum credit score: 600.

Estimated APR: 36% to 99% (depending on your creditworthiness and business financials).

Pros

  • Financing available within one business day after approval.

  • Simple application with minimal documentation required.

  • Startup-friendly — accepts borrowers with a minimum of six months in business.

  • Low minimum credit score requirement.

  • No prepayment penalties, account maintenance fees or inactivity fees.

Cons

  • Rates are high compared to traditional banks.

  • May require personal guarantee.

  • Can’t be used to build business credit.

  • Weekly repayments are required over a short term (maximum of 24 weeks).

Our pick for small-business loans for minorities with bad credit

If you have a credit score of 500 or higher, you may be able to qualify for a short-term loan from Fora Financial.

Fora Financial - Online term loan

Fora Financial - Online term loan
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Apply Now

on Fora Financial's website

Fora Financial can be a good fit for borrowers who may fall short of qualifying for traditional bank financing or young but established small businesses looking for speedy financing.

Maximum loan amount: $1.5 million.

Minimum credit score: 500.

Pros

  • Cash can be available quickly.

  • Get a discount for prepaying.

  • No collateral required.

  • Low minimum credit score requirement.

Cons

  • Charges a factor rate that makes it more difficult to compare costs to other lenders.

  • Can’t build business credit.

  • Longest loan term is 15 months.

Our pick for minority-owned businesses older than two years

Established businesses with strong credit may qualify for an online small-business loan with terms up to seven years. Funding can be available within two business days.

Funding Circle - Online term loan

Funding Circle - Online term loan
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Apply Now

on Funding Circle's website

Funding Circle is an option for established businesses that are financing an expansion or refinancing debt.

Maximum loan amount: $500,000.

Minimum credit score: 660.

Estimated APR: 15.22% to 45% (depending on your creditworthiness and business financials).

Pros

  • Cash can be available within two business days.

  • Competitive rates among online lenders.

  • No minimum revenue requirement.

  • Terms up to seven years.

Cons

  • Requires business lien and personal guarantee.

Our pick for microloans for minority-owned businesses

SBA microloans offer smaller loan amounts and more flexible qualification requirements compared to other SBA loan programs. In fiscal year 2022, 76% of SBA microloans went to underserved communities, including Hispanic- and Black-owned businesses.

SBA Microloan

SBA Microloan
Apply Now

on U.S. Small Business Administration's website

SBA microloans are small-sized loans funded by the U.S. Small Business Administration and issued through approved intermediaries, typically nonprofit and community lenders.

Maximum loan amount: $50,000.

Minimum credit score: 620.

Estimated APR: 8% to 13% (depending on your creditworthiness and business financials).

Pros

  • Less strict eligibility requirements than other government loans.

  • Available from nonprofit lenders.

Cons

  • Personal guarantee is required.

  • Collateral is typically required.

  • Small borrowing maximum.

What is a minority-owned business?

A business is typically considered to be minority-owned if it’s at least 51% owned and operated by people of specific ethnicities. For example, to be considered a minority-owned business in New York, business owners must be Black, Hispanic, Asian-Pacific, Asian-Indian Subcontinent, Native American or Alaskan Native

Empire State Development. MWBE Certification Eligibility Requirements. Accessed Feb 28, 2023.
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A certification stating your business is minority-owned may be required for you to qualify for specific minority business loans or programs.

Where to get a minority business loan

SBA lenders

The U.S. Small Business Administration backs many types of SBA loans, which are issued by banks and other lenders. One of the best SBA loan options for minority-owned businesses is the SBA Community Advantage loan program, which is specifically designed to provide financing for businesses in underserved communities. These SBA loans are available in amounts up to $350,000 and distributed by local, mission-based lenders.

Online lenders

Alternative online business loan lenders tend to have more flexible eligibility requirements than traditional banks. Some online lenders will even work with startups or businesses with bad credit. Loan amounts can range from about $1,000 to $500,000. Minority applicants have a better chance of getting approved with online lenders than banks, according to the Federal Reserve, but your loan will likely cost more.

Nonprofit microlenders

Many mission-based nonprofit organizations offer microloans to local businesses, often focusing on businesses owned by minority groups, women and veterans. The SBA also offers microloans of up to $50,000 through these nonprofit organizations. The SBA microloan program can be a good option for startups, as well as business owners with less-than-perfect credit histories.

Community development financial institutions

Community development financial institutions, or CDFIs, are banks, credit unions and other institutions that provide financial access, including loans, to minorities and other economically disadvantaged communities. For example, the Business Consortium Fund is a CDFI that provides minority business loans from $100,000 to $750,000. Many CDFIs also issue small-business loans for minorities through the SBA microloan or Community Advantage loan program.

Banks and credit unions

Banks and credit unions typically offer the most competitive business loans, and some — such as Union Bank and Native American Bank — offer lending programs dedicated to minority-owned businesses. But traditionally, minority business owners have faced difficulties in getting approved for small-business bank loans. If you can qualify for a business loan from a bank, however, this will likely be your most affordable option.

How to get a minority business loan

1. Determine your funding needs

You should decide how much capital you need and how you’re going to use it. You’ll also want to consider the loan type that might be best for your needs — a term loan vs. line of credit, for example — as well as how much debt you can afford.

2. Evaluate your credentials

You’ll want to consider your personal credit score, time in business and annual revenue to get a sense of where you stand before applying. You can also think about your cash flow, sales projections and available collateral.

3. Get certified as a minority-owned business

Although this certification isn’t required to apply for a business loan, it may be helpful for opportunities now and in the future. You can get certified as a minority-owned business through your state, or through the National Minority Supplier Development Council. 

Typically, you’ll need to be able to show that your business is 51% owned and operated by individuals that meet specific ethnic definitions. The requirements and process to become certified, however, can vary by state.

4. Research and compare lenders

As you begin your search for financing, you should compare several small-business lenders to find the right fit for your needs. You’ll want to consider factors such as loan offerings, interest rates, repayment terms, qualifications, funding speed and lender reputation.

5. Gather your documentation and apply

Although requirements and application processes will vary by lender, you’ll generally need to provide bank statements, tax returns and other business financial documents. The more accurately you can complete the lender’s application, the faster you will be able to receive a decision.

Some online lenders can fund applications within the same day, whereas others will take a few business days. More traditional lenders, like bank and SBA lenders, can take several days to several weeks.

Other resources for minority-owned businesses

  • SBA 8(a) business development program. The SBA 8(a) program does not offer loans. Rather, it’s a certification that can help small businesses interested in government contracting improve their chances of winning bids. To qualify, your firm must be 51% controlled by “socially and economically disadvantaged individuals,” which includes minorities, women and veterans.

  • Small-business grants. The government and private organizations offer grants and awards to minority-owned businesses. Opportunities often vary drastically from state to state, but here are some minority small-business grants to consider.

  • Free community resources. Many federal resources include regional or local offices, such as the small-business development centers and Minority Business Development Agency offices. These resources may be able to provide information on community financing, look over your loan applications and offer mentorship and networking opportunities.

  • SBA Emerging Leaders Initiative. This program works with high-potential small businesses in America’s underserved cities. Participants receive customized training in order to grow and sustain their businesses. At the end of the Emerging Leaders program, they create a three-year strategic growth action plan.

  • SCORE. Though it’s not specifically geared toward minority business owners, SCORE is a free volunteer program that connects entrepreneurs with seasoned business mentors who have a wealth of knowledge about business funding challenges.

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