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.
Loans for minority business owners
Banks typically offer the lowest-cost business loans, and some — such as Union Bank and Native American Bank — specifically work with minorities. But traditionally, minorities have struggled to get approved for bank small-business loans.
If you’re a minority business owner, you may instead want to consider:
Online loans. Alternative online business loan lenders tend to have looser eligibility requirements than traditional banks, and may focus more on criteria like your cash flow than your credit. Loan amounts range from about $1,000 to $5 million. 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. SBA Community Advantage loans. The U.S. Small Business Administration backs many types of SBA loans, which banks and other lenders issue. The Community Advantage program is for businesses located in underserved communities that need $250,000 or less. The SBA works with local, mission-based lenders to provide the financing. Use the SBA Lender Match tool to find loan providers near you. Microloans. The SBA offers microloans of up to $50,000 through nonprofit organizations. Its partners include The Opportunity Fund, which says 86% of its borrowers are minority business owners, and Accion, which draws more than 60% of its borrowers from minority communities. You can find providers in your state on the SBA website. Contact your local SBA district office for assistance. 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. You can find a CDFI in your state with this tool.
Additional help for minority 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. 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.
If your business has been open less than a year
Funding options are limited for small businesses that have less than one year of operating history — regardless of the owner’s background.
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. If you have strong personal credit, for instance, a personal loan for business is a viable option since most personal loans are unsecured. may be available but are usually expensive. Startup business loans for bad credit may be available but are usually expensive.
Business credit cards, too, may also offer financing for minority business owners starting out or those looking for working capital.
Compare small-business loans
When shopping for loans, be sure to compare annual percentage rates, or APRs, which indicate the true cost of borrowing including all fees. Use NerdWallet’s business loan calculator to figure out your monthly payment and total interest costs, and see loan options based on your credit score.