A Guide for Racially and Ethnically Diverse Entrepreneurs
Business Loans for Minorities
When it comes to the crucial funding required to launch a new business, racial and ethnic minorities generally have a tougher hill to climb. Not only do many minorities face prejudice during the loan application process, but an average lower net worth can often prevent them from acquiring the funds they need.
Fortunately, these obstacles appear to be decreasing. According to the U.S. Small Business Administration's (SBA) last assessment, the number of minority-owned businesses has been steadily increasing. In 2018, they nearly received a total of $10 billion in SBA funding. Thanks to new grants and loan programs for minorities, more and more minority business owners are able to find the support they need as they strike out on their own. This guide will introduce you to some of the resources available to minorities, including African Americans, Asians, Latinos, and Native Americans.
Where to Find Financing for Minority Businesses
As of 2012, the rate of U.S. minority business ownership was 14.6 percent, according to the SBA, with nearly 50 percent of those businesses owned by African Americans and almost 30 percent owned by Asians. Meanwhile, Hispanic business owners made up 10.3 percent of all business owners in 2012, a reflection of the rapid growth in the country's Latino population.
While you may find funding through traditional loans and programs, some government agencies and banks go the extra mile to offer funding specifically for racial and ethnic minorities. While some funders are government agencies, others are banks or associations dedicated to furthering minority business agendas and goals. Here are some of the leading programs:
SBA's 8(a) Business Development for Racial and Ethnic Minorities Program
One of the biggest and most successful funding programs for minorities is the SBA's 8(a) Business Development for Racial and Ethnic Minorities Program. To qualify, you must be able to prove you are part of a socially disadvantaged minority group. As the SBA notes, federal law defines socially disadvantaged individuals as those who are subject to racial prejudice or cultural bias within American society.
In terms of this specific program, individuals who are presumed socially disadvantaged include:
- Black Americans
- Hispanic Americans
- Native Americans
- Asian Pacific Americans
- Subcontinent Asian Americans
People from other socially disadvantaged groups may qualify, although they will need to prove they've suffered from bias and discrimination.
SBA Office of Native American Affairs
The SBA's Office of Native American Affairs was created to provide additional resources for American Indians, Alaska Natives, and Native Hawaiians as they launch their business pursuits and apply for funding. Support services include counseling, mentoring, and networking events that can help Native Americans and other Native people connect with lenders and find support.
SBA Lender Match
The SBA's Lender Match Program serves as a portal that connects small businesses with SBA lenders. According to the SBA, this portal aims to increase the amount of funding received by certain ethnic minorities, including African Americans. Answering a few questions about your business on the SBA's Lender Match Program website is often a small business owner's first step in the loan application process.
Small Loan Advantage and Community Advantage 7(a) Loan Initiatives
This program was created to offer resources and loan opportunities for underserved communities. The goal of this program is increasing funding for businesses opened by racial and ethnic minorities in moderate and low-income areas. Certain income and residential requirements may apply for program participants.
SBA Microloan Program
The SBA Microloan Program was created to offer up to $50,000 in funding for certain small businesses and not-for-profit childcare centers. While open to nearly everyone, this loan program aims to help small businesses who may struggle to qualify for traditional business funding. According to the SBA Microloan program, the average microloan offered is $13,000.
Small Business Development Center
The SBA's Small Business Development Center offers assistance to small businesses and entrepreneurs. Resources offered to those who qualify include free business consulting, low-cost training and business plan development, financial training and assistance, 8(a) program support, and healthcare guidance.
Accion US Network
The Accion US Network helps entrepreneurs and small business owners through each step of the business funding process. From filling out the initial loan application to loan prep and disbursement, Accion offers resources, guidance and help to minorities who apply. Loans from $300 to $250,000 are available to applicants who meet certain income and credit requirements.
Union Bank offers small business loans tailored to the needs of various ethnic minorities. Loan amounts up to $2.5 million are available, and special resources are available to minority businesses that apply. To qualify, your business must be at least 51 percent minority-owned and meet minimum credit requirements.
Minority Chamber of Commerce
The Minority Chamber of Commerce, based out of Washington D.C., was created to foster a sense of membership and inclusivity among minority business owners. Members can find support for their entrepreneurial efforts, along with resources on loans, funding, and coaching.
Minority Business Development Agency
The Minority Business Development Agency, part of the U.S. Department of Commerce, helps minority business owners find funding for their small business ideas, locate resources in their area or connect with like-minded mentors. In October of 2019, the MBDA even agreed to invest in the National Association of Investment Companies' (NAIC) initiative to inject $1 billion into minority businesses.
National Minority Supplier Development Council
The NMSDC offers resources, counseling, and networking for minority business owners and suppliers. This kind of benefit can be especially important to minority business owners who want to find support and connect with other like-minded individuals and their business pursuits. According to the NMSDC, their goal is "advancing business connections that count."
Entrepreneurial Assistance Program
Based in New York, the Entrepreneurial Assistance Program offers instructional training, technical assistance and support for new business owners and aspiring entrepreneurs.
National Minority Business Council
The National Minority Business Council is a full-service, non-profit organization that provides business assistance, educational opportunities and seminars to minority business owners and organizations.
Operation Hope Small Business Empowerment Program
Operation Hope offers an array of services and opportunities aimed at small business owners and aspiring entrepreneurs in disadvantaged communities. Support includes consulting, training, and credit data feedback that helps owners boost their credit scores and improve their chances for funding.
Grants for Minorities
While there are numerous business grants available nationwide, some were created to meet the specific needs of minority business owners and entrepreneurs. The following table highlights grants that apply only to specific minority groups:
How to Qualify
For More Information:
First Nations Development Institute Grant
The First Nations Development Institute offers various grants to business owners who belong to Native American, Alaska Native, and Native Hawaiian communities. The organization's grant-making process offers both financial and technical resources.
To qualify for a grant, you must be Native American, Alaska Native, or Native Hawaiian, and have a business plan or initiative that needs funding.
The First Nations Development Institute offered more than 1,600 grants totaling nearly $35 million to projects and organizations through the midway point of 2019. Individual grant amounts vary.
Community Connects Grants
The United States Department of Agriculture and Rural Development offers Community Connects Grants, which help rural residents and business owners gain access to broadband internet service in disadvantaged and remote areas of the country. With access to internet service becoming a requirement for small business owners, this grant can be essential for business owners branching out in their communities.
Most state and local governments, federally-recognized tribes, non-profits, and for-profit corporations can apply, although funding is based on need and feasibility. Grant applications are periodically accepted on a semi-regular basis.
Grant amounts vary depending on the size and scope of the project, but they frequently surpass $150,000.
Tribal Energy Development Capacity Grant
This grant, offered through the U.S. Department of the Interior - Indian Affairs, can be used for the development of new business structures related to energy resource development within certain minority communities. Qualifying activity includes setting up certain tribally chartered corporations, establishing tribal business charters under federal law, and creating tribal utility authorities (TUAs).
This grant opportunity may be available to Native American, Alaska Native, or Native Hawaiian business owners or tribes.
Grant amounts vary and can be in excess of $100,000.
Rural Business Opportunity Grants
Rural Business Opportunity Grants, which are offered through the United States Department of Agriculture, were created to foster the emergence of small businesses with less than $1 million in gross revenue in rural and underserved communities.
Generally speaking, towns, entire communities, state agencies, authorities, and non-profit organizations are allowed to apply. Institutions of higher education, federally-recognized tribes and rural cooperatives may also be considered if they meet desired criteria. This grant program is also designed for businesses who plan to have less than 50 employees and can be used in cities or towns with less than 50,000 residents.
Funding amounts can range from $10,000 to $500,000, according to the U.S. Department of Agriculture. In addition, there is no cost-sharing requirement.
Community Programs to Improve Minority Health Grant Program
The U.S. Department of Health and Human Services Office for Minority Health offers funding and programs aimed at improving the overall health of minorities. This includes an array of programs and grants aimed at specific issues among minority communities, including smoking cessation, HIV/AIDS, and communities at high risk for heart disease and other preventable illnesses.
Requirements vary depending on the grant in question. Generally speaking, however, any grant proposal must benefit the health or social improvement of a minority population in the United States.
Grants up to $500,000 have been available in the past, although all funding opportunities are based on need and considered on a case-by-case basis.
POWER (Partnerships for Opportunity, Workforce, and Economic Revitalization Initiative)
The U.S. Economic Development Administration offers the POWER program, which allocates funds for certain minority populations and their business pursuits. Created to benefit displaced coal economy workers, this grant and organization also focuses on funding renewable energy resources and jobs.
Funding may be available for: economic development organizations local governments planning organizations labor unions state and local workforce agencies institutions of higher education and other job training and adult education providers supportive services and human services providers
No specific grant amounts are listed, but the Appalachian Regional Commission has reported over $190 million in investments through the POWER initiative since 2015.
To get more inside advice about small business loan opportunities for minorities, we interviewed lending executive Joe Sky-Tucker, who has more than 20 years' experience in the nonprofit world. He works as the co-executive director of Business Impact NW, part of the National Cooperative Business Association. Business Impact NW is a community lender that specializes in supporting small businesses and microbusinesses, helping them achieve financial stability.
What unique challenges do minority small business owners face?
Generally speaking, they face an access gap. They lack access to technical assistance and business "know how," they lack access to markets, and they lack access to capital. Couple all those factors together and it becomes harder for these businesses to succeed. However, small business ownership is one of the key ways to address the racial wealth gap. While there is still work to be done across the board on this issue, people of color who own a business have a higher net worth than those that do not.
How can minority business owners show they are good candidates for a grant or loan?
They can work with CDFI's [Community Development Financial Institutions], community lenders, and credit unions. These lending institutions generally have less stringent lending parameters and can work with a borrower over the course of months or years to get them loan-ready.
What are some of the best programs you know about for minority business financing? The most successful?
There are some great organizations working in this space. In California, there is the Opportunity Fund. There is the Self Help Federal Credit Union.
I would be remiss if I did not mention my own organization, Business Impact NW. We have lending from $5k-250K, we are a CDFI, SBA, USDA, and SBA 7(a) certified lender. We also receive money from private sources.
What pitfalls would you suggest minority business owners try to avoid when applying for a loan?
Stay away from the online lenders that promise a fast turnaround on the loan. While the rates "can" be as low as 5 percent, the APR on them can be 98 percent to over 100 percent. Those are debt traps. Forbes has an article now about how this could be the next subprime bubble to pop.
Do some research on available community resources. Check the SBA website. Ask other small business owners. There are people out there dying to help small and micro businesses.
How can business owners increase their chances of getting the loan they need?
Some patience is required. Loan readiness can be a process. As soft around the edges on our underwriting as we are, we still expect to have our loan repaid. We still decline a lot of loans, but we will work with you to get loan-ready.
Borrowers also need to understand that business lending is different than consumer lending. The rates are higher, the criteria are different, and the lenders will need to look at a lot of information about the business.
Guide on Minority-Owned Businesses The SBA summarizes the top resources available to minority-owned businesses in this helpful guide.
Minority Business Development Agency Connect with other minority business owners to foster a sense of community, build valuable contacts and develop business initiatives that benefit everyone.
Minority Business Government Contracting Assistance This page helps connect minority business owners with the resources they need to procure valuable government contracts that can help their business grow and succeed.
Small Loan Advantage and Community Advantage 7(a) Loan Initiatives Learn about the Small Loan and Community Advantage programs, which are intended to increase business funding to underserved communities.
SBA Lender Match Program Answer a few questions about your business to see if you qualify for special loans or grants from SBA-approved lenders.
SBA Microloan Program Learn how to qualify for a microloan for up to $50,000 to fund your small business or not-for-profit childcare center.
SBA's Office of Native American Affairs The Small Business Administration's Office of Native American Affairs offers resources and business development strategies for American Indians, Alaska Natives, and Native Hawaiians.
Social Disadvantage Eligibility Read about the SBA's guidelines for its 8(a) Business Development loan program.
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