Minority-owned businesses are growing at a faster pace than overall U.S. businesses. Minority entrepreneurs owned 8 million, or 29%, of the nation’s nearly 27.6 million businesses as of 2012, up from 5.8 million in 2007, according to U.S. Census Bureau data.
However, securing financing can be a challenge for minorities. According to the federal Minority Business Development Agency, minority entrepreneurs may have lower credit scores and fewer assets to secure loans than other business owners. The average credit score of a minority small-business owner is 707, which is 15 points lower than the average of all small-business owners in the U.S., according to a 2016 study by credit bureau Experian.
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If you have less than a year in business
Funding options are limited for small businesses that have less than one year of operating history. Lenders typically prefer established businesses with a track record and operations that produce more than enough cash flow to support loan repayments, which tends to disqualify young businesses. The good news: You still may be able to finance your startup. Check out six potential startup financing options.
If you have a 500+ personal credit score
- Loan amount: $2,000 to $150,000
- APR: 24% to 99%
- Loan term: 6 or 12 months
- Funding time: A few minutes to several days
- Read our Kabbage review
Line of credit
- Loan amount: $1,000 to $100,000
- APR: 15% to 59%
- Loan term: 12 weeks
- Funding time: As fast as next business day
- Read our Fundbox review
The Kabbage and Fundbox lines of credit both provide fast cash for working capital. Both carry short repayment terms, but high borrowing costs.
The lenders do not have a minimum credit score requirement. However, you’ll need a minimum $25,000 annual revenue and six months in business to qualify with Fundbox, and at least $50,000 annual revenue and one year in business to qualify with Kabbage.
- Loan amount: $5,000 to $500,000
- APR: 9% to 99%
- Loan term: Repaid daily or weekly for 3 to 36 months
- Funding time: As fast as 24 hours but typically a few days
- Read our OnDeck review
OnDeck works better for an expansion. Its term loans max out at $500,000 and you can get a more competitive rate with longer repayment terms.
Qualifying is a bit tougher than Kabbage and Fundbox, as you must have strong annual revenue and at least a 500 credit score to qualify. Borrowers should note that the typical OnDeck borrower has a personal credit score of 660 or higher, revenue exceeding $450,000 and seven years of business history.
If you have a 600+ personal credit score
- Loan amount: $2,000 to $100,000
- APR: 9% to 40%
- Loan term: 3 to 36 months
- Funding time: 1 to 5 days
- Read our StreetShares review
StreetShares is a good option for working capital and businesses looking to borrow $100,000 or less. Your borrowing, however, is limited to no more than 20% of your annual revenue. For example, a business with $100,000 revenue could qualify for no more than $20,000.
- Loan amount: $30,000 to $350,000
- APR: 8.5% to 9.21%
- Loan term: 10 years
- Funding time: As quickly as 7 days but typically several weeks
- Read our SmartBiz review
- Loan amount: $10,000 to $350,000.
- APR: 10% to 25%.
- Loan term: One, two or three years.
- Funding time: Seven days on average.
- Read our Credibility Capital review.
For low-cost expansion financing, consider SmartBiz. The company provides U.S. Small Business Administration loans with faster funding than traditional banks: Several weeks vs. several months.
Qualifying is more difficult than your other options. Besides meeting SmartBiz’s minimum requirements, you’ll need to meet the SBA’s eligibility requirements.
Business owners with strong personal credit but would rather not wait so long for funding at SmartBiz could try Credibility Capital instead. The lender offers up to $350,000, with funding that takes a week on average. You’ll also need strong revenue to qualify.
If you have unpaid customer invoices
- Loan amount: $1,000 to $100,000
- APR: 16.4% to 67.7% for 12 weeks; 18.5% to 76.5% for 24 weeks
- Loan term: Equal repayments over a 12- or 24-week period
- Funding time: 1 to 3 business days
- Read our Fundbox review
- Loan amount: $20,000 to $2.5 million
- APR: 17% to 60%
- Loan term: 1 to 12 weeks
- Funding time: 1 to 3 days
- Read our BlueVine review
If your business has unpaid customer invoices and you have less than perfect credit, consider invoice financing through Fundbox. The lender has no minimum credit score or annual revenue requirements, but your business must use online accounting software that can link to Fundbox, such as QuickBooks, FreshBooks or Harvest.
BlueVine’s invoice factoring works better for financing larger invoices between $20,000 and $2.5 million. The lender requires a minimum credit score of 530, annual revenue of at least $100,000 and three months of business history.
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SBA lending resources and more
SBA Community Advantage loans: This program is for businesses, including those owned by minorities, that need $250,000 or less and are located in underserved communities. The SBA works with local mission-based lenders to provide financing. From October 2016 to January 2017, 32% of the SBA’s 7(a) loans for startups and existing small businesses, including Community Advantage loans, went to minority business owners. Check out the SBA website for more information and a list of approved lenders.
SBA microloans: The SBA offers microloans of up to $50,000 through nonprofit organizations. Interest rates range from 8% to 13%, and there’s a maximum repayment term of six years, according to the SBA. The Opportunity Fund is one partner, and 90% of its borrowers are minority business owners, according to the company. There’s also LiftFund — more than 55% of its borrowers identified as Hispanic as of March 2016 — and Accion, which draws 60% of its borrowers from minority communities. Here’s a list of providers by state. Contact your local SBA district office for assistance.
National African-American Small-Business Loan Fund: The Valley Economic Development Center and JPMorgan Chase announced a small-business loan program for African-American-owned small businesses in New York City, Chicago and Los Angeles in 2015. Loan amounts range from $35,000 to $250,000, and borrowers receive financial consulting as well as technical assistance with marketing and business plan development.
JPMorgan Chase: The bank said in late 2016 that it would commit $75 million over three years to increase access to capital for small businesses owned by women, minorities and veterans. This commitment includes a $4.6 million grant to nonprofit microlender LiftFund to help small businesses in New Orleans, Atlanta, Dallas, Houston, San Antonio and Austin, Texas, obtain capital quickly. It also includes a $1.9 million grant to the Association for Enterprise Opportunity to help develop a platform that connects small businesses with community development financial institutions to provide small-business loans to underserved entrepreneurs.
Small-business loans for minorities: Compare options
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Compare small-business loans carefully
When shopping for loans, be sure to compare APRs, the true cost of borrowing including all fees. NerdWallet’s small-business loans comparison tool can help. We gauged lender trustworthiness, market scope and user experience, among other factors.
Updated Nov. 9, 2017.