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.
While there are few small-business loans specifically geared toward minorities, there are financing options and resources, including grants and awards.
Small-business loans from banks offer the lowest interest rates, but there are financing opportunities for entrepreneurs who don’t qualify for traditional lending. We’ve rounded up alternative financing options that may be a good fit.
FOR OUR RECOMMENDATIONS BASED ON PERSONAL CREDIT SCORE AND OTHER NEEDS:
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 potential startup financing options.
If you have strong personal credit, for instance, a personal loan for business is a viable option since most personal loans are unsecured.
Business credit cards, too, offer financing for small-business owners starting out or those looking for working capital.
If you have a 500+ personal credit score
- Loan amount: $2,000 to $250,000.
- 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: 10.1% to 79.8%
- Loan term: 12 weeks
- Funding time: As fast as next business day
- Read our Fundbox review
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 $50,000 annual revenue and three 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 $200,000
- APR: 30% to 70%
- Loan term: 9, 12 or 18 months
- Approval time: As fast as 24 hours
- Read our QuarterSpot review
QuarterSpot provides a slightly longer borrowing term, making it a better choice for larger purchases. However, its borrowing amount maxes out at $200,000 and come with relatively high rates.
Qualifying is a bit tougher than with Kabbage and Fundbox. You must have higher annual revenue ($200,000) and at least a 550 credit score to qualify.
If you have a 600+ personal credit score
- Loan amount: $2,000 to $250,000
- 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 $150,000 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.
SBA 7(a) Loan
- Loan amount: $30,000 to $350,000
- APR: 8.53% to 9.83%
- Loan term: 10 years
- Funding time: As quickly as seven days but typically several weeks
- Read our SmartBiz review
- Loan amount: $10,000 to $350,000
- APR: 10% to 25%
- Loan term: 1, 2 or 3 years
- Funding time: 7 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. In addition to meeting SmartBiz’s minimum requirements, you’ll need to meet the SBA’s eligibility requirements.
Business owners who have strong personal credit but would rather not wait so long for funding 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: 10.1% to 68.7% for 12 weeks; 11.4% to 78.6% for 24 weeks
- Loan term: Equal repayments over a 12- or 24-week period
- Funding time: As fast as the next business day
- Read our Fundbox review
- Loan amount: $20,000 to $5 million.
- APR: 15% to 68%.
- Loan term: 1 to 13 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 $5 million. The lender requires a minimum credit score of 530, annual revenue of at least $100,000 and three months of business history.
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. Use the SBA Lender Match tool to find more information on SBA loan providers near you.
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. CDFIs, or Community Development Financial Institutions, also provide microlending opportunities for minority business owners. The Opportunity Finance Network has a tool that can connect you with a CDFI in your state.
SBA 8(a) business development program: For small businesses interested in government contracting, getting an 8(a) certification can help improve their chances of winning bids. To qualify, your firm must be 51% controlled by “socially and economically disadvantaged individuals,” which includes women, minorities and veterans.
Grants: Many institutions provide grants and awards to minority-owned small businesses. Opportunities often vary drastically from state to state, but we’ve highlighted national options. You can also check with your local Small Business Development Center or Minority Business Development Agency office for more opportunities in your area. (More on the organizations below).
Free community resources: Many federal resources have regional or local offices, such as the Small Business Development Centers and Minority Business Development Agency offices. Visiting one near your business can help you get information on community financing, 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.
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.
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, which indicate 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.