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Best Small-Business Loans for Minorities

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Written by Randa Kriss
Edited by Sally Lauckner
Last updated on May 9, 2022

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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. In fact, a 2019 report from the Federal Reserve found similar approval rates for white- and Black-owned businesses among online lenders, which was not the case for banks.
To get the best deal possible, be sure to compare all your small-business loan options. But here are some small-business loans that may be a good fit for minority business owners, plus other financing options and resources — including grants and certifications — for minority-owned businesses.

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 2021, 30% of SBA 7(a) loans were issued to minority business owners.
SBA 7(a) loan
7(a) program participants include specialized lenders like Live Oak Bank and big-name traditional banks like Wells Fargo.
Maximum loan amount: $5,000,000.
Minimum credit score:
650
.
Estimated APR:
7.75
% to
10.25
% (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 small-business loans for minorities with bad credit

If your credit score is at least 600, you may be able to qualify for a short-term business loan with amounts up to $250,000. These loans are good for specific, one-time purchases.
OnDeck - Online term loan
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:
600
.
Estimated APR:
29.9
% to
97.3
% (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 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:
10.1
% to
79.8
% (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 minority-owned businesses older than two years

Established businesses with strong credit may qualify for an online small-business loan with terms up to five years. Funding can be available within three business days.
Credibility Capital - Online term loan
Credibility Capital offers low-cost business loans that work best for small-business owners with strong credit.
Maximum loan amount: $500,000.
Minimum credit score:
650
.
Estimated APR:
7.99
% to
24.99
% (depending on your creditworthiness and business financials).
Pros
  • Competitive rates among online lenders.
  • No prepayment penalty.
  • Extra monthly payments can save interest cost.
Cons
  • Requires high minimum credit score and revenue.
  • Requires business lien and may require personal guarantee.
  • Not available in Nevada, North Dakota, South Dakota or Vermont.

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.
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

CDFIs are banks, credit unions and other institutions that provide financial access, including loans, to minorities and other economically disadvantaged communities. For example, The National Minority Supplier Development Council Business Consortium Fund is a CDFI that provides minority business loans from $100,000 to $750,000. Many CDFIs also issue small-business startup loans for minorities through the SBA microloan 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.

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 have 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.
  • 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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