A minority group is defined as any group that experiences a relevant disadvantage as compared to the dominant members of a community. Typically, it refers to African Americans, Native Americans, Hispanics, veterans, women, and people from poor socio-economic backgrounds.
However, in terms of business loans, women and people from poor backgrounds will have specific loans that are distinct from minority loans, which more often refers to people from distinct cultural classes that put them at a competitive disadvantage. From this perspective, women might not be classified as a ‘minority’ group.
In addition, there are multiple sources of funding from women-owned businesses, as we wrote about in our “25 best business loans for women” guide. And microfinance, crowdfunding, and community programs are in place for people from poorer economic backgrounds.
Minority-based loans tend to be a little rarer, and 21 of the best are listed below. The list of minorities includes veterans, South Americans, Native Americans, and African Americans. If you are a minority business owner, there are multiple options in terms of financial access.
1. Military Reservist Economic Injury Disaster Loan (MREIDL) – MREDIL provides loans of low interest (4%) for veterans whose small businesses were impacted due to being called into active service. It also allows generous 30-year term lengths and is available to veterans within 12 months of being released from their obligations. However, it comes with some drawbacks. The SBA is required to investigate that the small business would not be able to recover without financial intervention. Further, collateral is required for loans above $50,000.
2. SBA Veterans Advantage Loan – The SBA Veterans Advantage loan is a variant of the SBA Express loan, but designed for veterans who are active, retired, or honorably discharged. Like all SBA loans, a large amount of documentation is required. However, the interest rates on these loans are among the best available. Veterans can also waive all the upfront fees and borrow up to $350,000, which is a significant amount. Another Federal option for US veterans is the SBA 8 (a) Service-Disabled Veteran-Owned Business Contracting Program. This is for disabled veterans operating a small business.
3. Streetshares – Is a veteran-owned company, so it is only natural that they would provide business loans for veterans. It is a lending marketplace that connects entrepreneurs with small businesses. There are very few commercial lenders that cater to veteran-owned outlets, and Streetshares is one of them. The application process can be completed in under 10 minutes.
4. Veterans Business Fund – This is a non-profit fund that seeks to provide capital to veteran-owned businesses. The Veterans Business Fund is currently in the fundraising stage and is currently not accepting applications. When it becomes fully operational, the loan will be low interest, though collateral and outside financial assistance may be a requirement before the funds are released.
5. Camino Financial – This company was launched specifically to help Hispanic entrepreneurs (“Hispanics” are typically South or Central American natives or from Spanish speaking countries). To get a loan with Camino Financial, applicants must have a credit score of 550 and have been in business for at least 9 months with annual sales of at least $30,000. These requirements are very low, even compared to online lenders. Funding can be supplied in less than two business days.
6. Balboa Capital – Offers commercial loans aimed at Hispanic-owned businesses. The loan application process is quick and loan amounts range up to $250,000 with no collateral required. This is a huge loan to get without putting down any collateral and there is no minimum credit score. However, the business needs to generate at least $300,000 in annual revenue, which is far too much for many new businesses. Balboa Capital offers a similar loan for African Americans and other minority groups.
7. Opportunity Fund – This is a not-for-profit organization. They offer a variety of small business loans to minorities and even have a Spanish version of their website to cater to Hispanics. Hispanics are the main minority group that Opportunity Fund caters to. Application is easy and funding can be provided in as little as 5 days.
8. SBA Community Advantage – The SBA Community Advantage Program is one used by many minorities, not just Hispanics. It aims to serve business owners in impoverished areas. While not strictly aimed at Hispanics, many minority groups tend to fall into this category. Interest rates on these loans are affordable and the amounts range from $50,000 to $250,000. However, applicants will need strong credit and a good business plan in order to qualify. Collateral is also required.
9. Native American Bank (NAB) – Provides a range of business loans but focuses primarily on tribally-owned enterprises (which includes Native Americans, Alaskan natives, and Hawaii natives). They specialize in providing loans to these groups and are familiar with many of the complexities of tribal law. NAB works with Federal agencies such as the Small Business Administration, the Bureau of Indian Affairs, the Department of Transportation, the US Department of Agriculture, and the US Housing and Urban Development Department.
10. Community Development Financial Institution (CDFI) Loans – CDFIs are not-for-profit institutions with the goal of providing financial access to impoverished communities. CDFIs are managed by the US Department of Treasury and some of them are designed as “Native CDFIs”, aimed to serve Native Americans as well as natives of Alaska and Hawaii. CDFIs provide loans as well as training and mentoring resources to deserving communities.
11. U.S. Department of the Interior Indian Loan Guarantee Program – The Department of the Interior (DOI) runs an Indian Loan Guarantee Program designed to generate loans for Native Americans. Much like SBA loans, the US government guarantees these loans up to a certain amount, reducing the risk for the lending institutions and increasing the chances of loan success for Native Americans. However, your product or service must benefit the tribal region and a 20% down payment must be made. Up to $500,000 is available with a 90% guarantee. Large banks and smaller community banks often provide these loans.
12. U.S. Department of Agriculture Business & Industry Loan Guarantee – USDA business loans are available to business owners in any rural community. Many Native Americans will qualify for these loans, as the qualifications are not that strict. Your business just needs to be located in a rural area. However, you also need to provide collateral. If you are planning to use the loan to purchase real estate or machinery, then this can serve as the collateral. The USDA guarantees loans up to $25 million. Native Americans can contact a local USDA office to get started.
13. Accion – 60% of Accion loans are generated from minority communities. The loans are not only for African Americans but include Hispanic, Asian, Native American, and other minority groups. Accion is very different from many other online lenders. They evaluate each application on its own merits without standard requirements such as minimum credit score and minimum annual revenue. This opens the doors for more social classes to obtain a loan.
14. National African American Small Business Loan Fund – Offers loans between $35,000 to $250,000 to African American-owned small businesses in LA, Chicago, and New York. Qualification is relatively quick and easy. The program is offered by JP Morgan Chase in conjunction with the Valley Economic Development Center (VEDC). This is a new program.
15. Union Bank – Though not specifically aimed at African Americans, Union Bank has a Business Diversity Lending Program to help minority business owners. To qualify, business owners need to be a minority group. The business must be at least 2 years old with annual sales that do not exceed $20 million. The minority business owner (s) must own at least 51% of the business enterprise.
16. The Minority Business Development Agency – Is designed to provide financial access to minority-owned businesses in the USA. Their site outlines a list of options available to minority business owners are they are among the most well-known institutions in terms of lending to minority-owned businesses. They also offer grants and training to eligible businesses. Business owners can contact a local MBDA office for more information.
Other Options for Minorities
All of the standard loan options are also available to minority groups. There is nothing stopping minority business owners from going for the SBA(7)(a) loan, though the requirements are quite strict. Business lines of credit and business credit cards are also available, as is equipment financing.
But online lenders can often supply finance in as little as 24 hours once a very basic application process is completed. Credit requirements are very low and there is little required documentation. There are many microfinance programs in place to help people from poorer economic backgrounds, and there is often an overlap between minority cultural groups and poverty. Here are some examples of high-quality online lenders:
17. Lending Club are an online P2P loan marketplace connecting lenders with borrowers. It offers business loans up to $300,000 for a variety of purposes, such as equipment financing, working capital loans, or debt consolidation. A minimum credit score of 600 is needed to apply.
18. OnDeck are one of the most well-known online lenders. However, meeting their requirements is a little more difficult. Applicants need a minimum credit score of 600 as well as $100,000 in annual revenue. This can put them out of the reach of many minorities, though the rates are quite low on this platform.
19. Fundbox could be the perfect option for many minority groups. It offers a business line of credit up to $100,000. These are revolving credit lines that can be used when they are needed. You only pay interest on what you take out. There is no minimum credit requirement and the funds can be in your account within 24 hours. Fundbox also offers invoice financing for small businesses.
20. LoanBuilder are a PayPal service that is perfect for minority groups for a number of reasons. There are no origination fees or early prepayment penalties, and funding can be provided in as little as 24 hours. Their requirements are very easy to satisfy, even by online lending standards. The business simply needs to be more than 9 months old with an annual revenue of more than $42,000. The minimum credit score is only 550. Many minority groups will be able to qualify for a term loan from LoanBuilder.
21. Kabbage are online providers of business lines of credit. Kabbage also offers a business credit card tied to the line of credit and are one of the easiest online lenders with low criteria, with the possible exception of Fundbox listed above. Applicants only need a minimum credit score of 560 (which is quite low) and 12 months in business to apply. Lines up to $250,000 are available.
Minority groups have many options, and 21 of the best business loans are listed above. As well as these business loans, minorities can access SBA (7)(a) loans, crowdfunding, grants, online loans, venture capital, angel investment, and many other financial avenues. While minorities are disadvantaged, there are certainly more avenues available than ever before – this applies across the board.
Is Coronavirus Relief Available for Minority-owned Businesses?
First, don’t miss our guide about the best tools for coping with the Covid-19 situation. The PayCheck Protection Program (“PPP”) has finished. However, while it was available, minority-owned businesses could have claimed it just as easily as other business owners. It allowed the forgiveness of existing debt for a period of time as well as the ability to cover payroll costs and other expenses. COVID-19 relief was made available to wider business groups, and not specifically to minority businesses.
Just What Is a “minority” Anyway?
A minority group is one that is historically disadvantaged and under-represented in society. Examples include Women, African-Americans, Native Indians, and US Army Veterans. Studies have proven that these classes have less success in loans, less representation in corporation management, and less representation in university campuses. They have a less powerful status in society, which is generally attributed to some kind of societal imbalance as opposed to a natural phenomenon. A minority-owned business is a business that is at least 51% owned by a minority group.
Which Minority Group Has the Most Loan Options and Support Right Now?
Without a doubt, the minority group with the most support would be female entrepreneurs. In recent years, there has been a massive increase in the prominence of female business people. They have the widest array of loan and grant options. There has also been a lot of research marketed which indicates the corporations with a more diverse female ownership tend to do better. While Black Lives Matter has increased awareness of the plight of African Americans, females still have the most support right now.
Are There Business Loans for Minority-owned Businesses With Bad Credit?
Similar to all types of business owners, there are loans available to minority-owned businesses that have poor credit. But minority-owned businesses might have better luck trying with grants and other loan options. Failing these options, they can then use reliable online lenders like Kabbage and PayPal LoanBuilder to get a loan with poor credit.
What Grants Are Available for a Minority-owned Business?
There are too many grants available to list in detail. But there are nearly 100 reputable grants that have been in operation for a long time. For female entrepreneurs, in particular, there are a huge number of available grant options. Grants do not have to be repaid, in comparison to loans. However, you will have to attend publicity stunts and report on how you used the grants. In addition, it takes time to submit a grant application.
Are Minority Business Loans the Same As Grants?
A business loan is completely different from a grant. A grant is like a gift. You need to first ‘win’ the grant, beating the other competitors. And you then need to spend the grant only on the items that you put forward in your application. You win a grant, but you ‘qualify‘ for a loan. A loan is repaid back with interest. So not only does it have to be repaid, but it must be repaid on time, with an additional cost. However, the loan is far easier to obtain than a grant, and you know where you stand with a loan in minutes, one you are using an online lender.
What Is the Difference Between a Minority Business Loan and a Micro Loan?
A minority business loan is a loan aimed specifically at minorities. It often comes with vastly reduced fees (or no fees at all). A micro loan is a loan under $50,000. Often, the two merge together. You can also get a micro-grant aimed at minorities. This will be a small figure aimed to help a particular group. The average size of a micro loan is $13,000.
Do Online Lenders Offer Minority Loans?
Online lenders do not really offer minority loans. They are commercial outlets and often use an algorithm to determine if you are able to repay the loan. In other words, they are completely non-discriminative, and only offer loans available to those who are efficient in their business. There is nothing stopping a minority business owner from applying, and they will have just as good a chance as anyone else.
What Resources Are Available to Minority-owned Businesses?
The 6 most important resources for minority-owned businesses are U.S. Department of Commerce Minority Business Development Agency (MBDA), the US Small Business Administration (‘SBA’), City Minority Business Assistance Programs, Minority Chamber of Commerce, and SCORE. Remember not to rely on minority status too much – you have just as much power as any other group. If you rely too heavily on free aid, it can sometimes be disempowering.
Why All the Hype Surrounding Minority-owned Businesses These Days?
Primarily marketing. It has become socially acceptable to adopt a political stance based on a victim mentality. This can easily lead to a disempowering of not just an individual but an entire social group as they look to government programs to save them instead of relying on their own intelligence. While it is true that some resources should be made available to minorities (especially US Army Veterans), there is an incredible level of propaganda aimed at pitting people against one another based on their social class.