Being a part of a minority in a community is never easy, and it is exponentially more challenging to start and develop a business as a minority. The challenges and disadvantages will trip you on every step. The minority groups in the USA usually refer to people of African-American descent, Hispanic people, Native Americans, people from poor socio-economic backgrounds, veterans, and similar groups.
In the previous post, I’ve covered the funding options for women-owned businesses, black-owned businesses, and veteran-owned businesses. Here, I’ll provide you with several financial opportunities that provide financial support for minority-owned businesses.
Table of Contents
- What Counts As a Minority?
- Wrapping Up: There Are Good Funding Options for Minority-owned Businesses
- Why Are Minorities Less Likely To Get Small Business Loans?
- Tips for Minority-Owned Businesses
- Tips on Helping and Supporting a Minority-Owned Business
- Business Grants for Minorities
- Online Loan Options for Minority-Owned Businesses
- FAQ Section – Most Popular Questions Related to Financing for Minority-Owned Businesses
What Counts As a Minority?
Before I go into details about finance, loans, and alternative options for small businesses owned by minorities, let’s first talk a bit about what counts as a minority. According to official definitions, a minority is a group of people with different races, religions, practices, ethnicities, or other less represented characteristics in the overall community. In other words, minority groups are often disadvantaged and under-represented in society and tend to have a less powerful status in society, directly linked to societal imbalance.
Still, this has not stopped the minorities from becoming an integral part of the US economy; by some estimations, there are now over 11 million minority-owned businesses in the USA. Another vital fact I need to note here is that the USA is expected to become a minority-majority between 2040 and 2050. It means that the number of non-white people will go over 50% of the total US population.
The main minority groups in the USA now are the African-American minority, Asian minority, Hispanic minority, and the multi-racial minority group.
Wrapping Up: There Are Good Funding Options for Minority-owned Businesses
Minorities in the USA still face many challenges and run into difficulties growing their small businesses. However, there are many finance options for minority-owned businesses that provide funds, help, support, and education to any minority entrepreneur.
Above I’ve covered some funding opportunities for small businesses owned by minorities; these range from online lenders with programs supporting minority-owned businesses to government grants and SBA programs for minorities. While minorities are disadvantaged, there are certainly more avenues available than ever before – this applies across the board.
Why Are Minorities Less Likely To Get Small Business Loans?
Even in 2021, minority-owned businesses still have difficulties accessing funding. It is due to several important reasons:
- Minority-owned businesses have lower net worth and face a lack of assets – an estimation states that average white business owners start a business with over $100K in working capital, as opposed to the average African-American business owner starting with an average of about $35K.
- Minority business owners have an average lower credit score – we all know that the credit score is the predominant deciding factor when looking for a loan. I’ll not explain why this is here, but a lower credit score almost always means higher interest rates, and a very bad credit score usually means a loan rejection.
- Many minority-owned businesses are located in impoverished communities – the location of the business has a significant role in the loan approval, and lenders are less likely to grant a loan to a small business in an unurbanized area.
Tips for Minority-Owned Businesses
Like it or not, minorities are still discriminated against and face many daily challenges. This behavior is even more pronounced when it comes to a minority-owned business. Minority entrepreneurs face struggles and often find it much more challenging to get access to funding. Add to this the impact of the global pandemic, and the difficulties only grow in size and number. Many times, minority business owners face such issues that they could even consider shutting their business. Here are some tips that all minority entrepreneurs (entrepreneurs in general) can use in business:
- Adapt To Change – as a minority-owned business, you should aim to be flexible and adapt to daily changes. Small businesses can change quickly and adjust to market demands, and you should always aim to use this to your advantage.
- Use Social Media – leverage social media and build an active following there, as social media has become the norm for mass advertising. Ask your friends and family to share your posts and spread the word about your business online. Also, it helps to have a well-designed website that people can discover and easily find your products and services.
- Understand Risks – you’ve probably taken the biggest risk by becoming a small business owner, but risks are a part of life. To grow and develop your business, you should always understand the risks and the outcome – knowing what the worst-case scenario is can help you tune your strategy.
- Learn and Improve – every mistake is a lesson that should teach you what to do (or what not to do) next. Learn from your mistakes and improve on them.
- Set attainable goals – any small business faces similar issues, and if you only have a single goal in mind, you will very likely be disappointed. Instead, make a set of short-term goals that are more easily attainable and that you can reach. Once you reach one goal, you can move to the next, and it will also provide you with the motivation to continue building your business.
- Don’t lose your focus – when starting a business, you will face many risks, and you will certainly not be making any significant profits initially. It should not be a deterrent, and you should keep your focus and achieve your short-term goals.
Tips on Helping and Supporting a Minority-Owned Business
With over 11 million small businesses owned by minorities in the USA, these play a significant role in the local economy. For these to grow and thrive, we all should do our part in supporting them. Here are some ways you can offer your help and support to a minority-owned business:
- Buy From Them
It is self-evident, but the best way to help a minority-owned business is to puy their products and hire their services. The help could be shopping at a local bakery or a local café instead of shopping at a large coffee chain or hiring a local cleaning crew. Such behavior helps support minority-owned establishments and supports prosperity. Also, small local businesses usually use local suppliers, which helps strengthen a community.
- Brag on Social Media
When you get a product or a service from a minority-owned business that you are happy with, you should brag about it on social media. It helps build the businesses’ online reputation, and more people can learn about the particular business. Leave reviews online on the most popular review sites. If you are satisfied with the product/service, leave a positive review with photos, as any mention of the business online helps build online visibility and reputation.
- Donate To Minority-owned Businesses
Many small businesses use online crowdfunding platforms to raise money for a particular thing. It can expand the business, develop a new product or upgrade the equipment or do something similar. If you learn that a minority-owned business has a crowdfunding campaign going on, consider donating to it, as you can help their cause, even with a small contribution.
- Skip Services That Lower Profits from Small Businesses
Many services that simplify our lives charge a hefty fee to the companies they help: for example, DoorDash takes 30% of the profits on an order. So, even if you buy from a minority-owned business, using a delivery service will lower their earnings. In such cases, buy local, use their in-house delivery service if they have one, or pick your order yourself.
Business Grants for Minorities
The minority-owned businesses can also apply for grants as an alternative mode of funding. Grants don’t require repayment and are an excellent alternative to loaning funds from banks or online lenders. Getting a grant is like hitting the lottery, as the funds don’t need to be repaid, and can be used for anything that helps boost the small business.
As the minority-owned businesses get fewer opportunities for funding from banks and other more traditional sources, they can do better by applying for grants dedicated to minorities. Even though grants are considered “free money,” the application process is quite complex and lengthy. Here are the best minority grants for small businesses:
- Grants.gov – a page that aggregates all the government-offered grants in a list and provides info on all the grant-related resources you will need to apply for one. At this time, Grants.gov has about 1,000 different grants for small businesses, and you can use the search option, and look for the grants for minority-owned businesses.
- MBDA Programs – the Minority Business Development Agency is a part of the US Department of Commerce, and it has programs to support minority-owned small businesses. This program is not a grant program per se, but it helps with finance, competing for a contract, and additional resources to help the minority-owned businesses grow and develop.
- USDA Rural Business Enterprise Grant Program – this grant program is not specifically for minority-owned businesses, but all qualifying businesses from eligible areas can apply. Applicants from federally recognized tribes have an advantage, as do businesses that will create jobs and aid local development.
- SBA 8(a) Business Development Program – a program aimed at minority-owned businesses, the SBA 8(a) program helps socially and economically disadvantaged small businesses by providing assistance, training, and technical guidance; this program enables businesses to apply for federal government contracts. To be eligible, the small business needs to be majority-owned by a member of a minority group.
- National Black MBA Association Scale-up Pitch Challenge – a program offering startup grants to support new businesses partially or wholly owned by a person of color; this is an exciting challenge. The application process is interesting, and the grant amounts are pretty appealing.
Online Loan Options for Minority-Owned Businesses
Still, not all is lost when it comes to business loans for minorities. There are plenty of options to explore, and here I’ll cover the most prominent online lenders who provide loans for minority-owned businesses.
- OnDeck – this is a proper online lender with good loan options for many business owners. The loan options are term loans and business lines of credit, and they have a good knowledge base for minority-owned businesses.
- SmartBiz – an online loan facilitator that enables more accessible access to SBA 7(a) loans and bank term loans. Any certified minority-owned small business can apply for a loan here, especially for the SBA 8(a) Business Development Program, among other options.
- LoanBuilder – a PayPal subsidiary, LoanBuilder is an excellent online lender providing short-term loans for small businesses. While they don’t have a special minority-owned business loan program, their qualifying criteria are low, and many businesses can apply.
- Kabbage – among the online lenders providing loans with reasonable terms and conditions, Kabbage takes the lead with options for minority-owned businesses tailored to their needs.
- Fundbox – an online lender knowledge base to help minority-owned businesses, it provides a line of credit for small businesses with very loose qualifying requirements.
- Lending Club – an online lending marketplace with loan options for both business owners and personal loans, this online service does not have a specific loan program for minority-owned businesses, but they have many loan opportunities.
What Qualifies as a Minority-Owned Business?
Any business that a member of a minority group owns is considered a minority-owned business. The qualifying terms state that to be considered a minority-owned business, a member of a minority group should own at least 51% of the small business.
How Do You Become Minority Certified Business?
For a business to be a minority certified business, it should be owned by a US citizen, and at least 51% to be owned, managed, and controlled by a member of a minority group. The business should be a for-profit enterprise and must be physically located in the USA or its territories. Also, the management and the daily operations need to be done by the minority owner.
When we talk about minorities, we need to outline what constitutes a minority group: any individual who is at least 25% Asian-Indian, Asian-Pacific, Black, Hispanic, or Native American. The eligibility is established via document reviews, screenings, interviews, and on-site visits. The minority certification is done via the official website of the National Minority Supplier Development Council.
Is a Female-Owned Business Considered a Minority Business?
Generally, women are not considered a minority in societal terms. However, there are very few women business owners as opposed to men business owners. In some cases, these businesses are considered minority-owned businesses. Still, separate funding programs help women-owned businesses.
Is a Business Owned By an LGBTQ Person Considered a Minority Business?
The LGBTQ community is a small one, and not many people openly identify as a part of it, which can be due to societal stigma or other repercussions. These individuals are a part of a minority group, but this one is different from the usually accepted minority groups delineated by race. There are benefits and possibilities that can help an LGBTQ-owned business, but these depend on the type of business and the location of the business.