If you’re a minority small business owner, you might’ve learned the hard way that equal opportunity doesn’t always apply to small business loans. A recent study coauthored by a Brigham Young University business professor recruited nine people—three black, three Hispanic, and three white—to act as “mystery shoppers” and apply for $60,000 small business loans.
All nine presented the same type of business, the same background, and the same reasons for wanting the loan. However, the minority loan applicants received less information about loans and less assistance from loan officers, and were asked more questions about their personal finances.
Taking the problem to the macro level, studies show that minority entrepreneurs only make up 8.5% of all would-be business owners pitching their ideas to angel investors—and only 15% of them are successful, compared to 22% of all entrepreneurs together.
Given this reality, where is the best place to seek out small business loans for minorities? There isn’t a particular lender you can go to that specializes in small business loans for minorities. But there are federal, state, local and private loan programs tailored to address some of the challenges that minority small business owners often face, like seeking small loans, starting businesses in underserved communities or being economically disadvantaged.
For lending purposes, minorities are usually classified as African-American, Hispanic-American, Asian-American, Alaskan Native, Pacific Islander or American Indian individuals. A minority business is at least 51% owned by a member of one of these groups. Often, your business will need to be certified as a minority business enterprise (MBE) or disadvantaged business enterprise (DBE) to apply for the loan.
Because many lenders and programs that provide small business loans for minorities operate on the state or local level, it’s a good idea to work with a local organization that knows the terrain and can help you find lenders suited to your needs. (How else would you find out about ultra-niche programs like the loans to help political refugees start businesses that are offered by WESST, a nonprofit organization to assist small business owners in New Mexico?)
Beyond community groups and educational programs, there are many governmental grant programs that focus on businesses owned by minorities, and especially individuals who belong to a Federally-recognized Native American tribe. Even if the grant is for a community rather than a small business, check to see if you can contract for some of the work that would be involved in fulfilling the grant’s terms. Grantseeking requires creativity, determination, and patience—so don’t be afraid to think outside of the box.
Here are some sources of small business loans and resources for minorities.
1. SBA 7(a) loans/8(a) Business Development Program
Small Business Administration guaranteed 7(a) loans are not for minorities only. However, minority or disadvantaged business owners who participate in the SBA’s 8(a) Business Development program for small disadvantaged businesses have a better chance of qualifying for a 7(a) loan.
Some 80% of SBA loan applications from black and Hispanic business owners are for $150,000 or less, according to the agency. Ironically, smaller loans are often harder to get than big ones, since lenders don’t make as much money from them. This past October, in an effort to encourage lenders to make more small loans, the SBA waived the 2% fee for loans of less than $150,000.
2. Union Bank
Union Bank provides small business loans and lines of credit specifically for minority business owners. These products have less stringent lending standards and are designated for small business owners who meet the bank’s designation of “minority” (which is the same as the EEOC’s) and want loans of up to $2.5 million.
3. National Minority Supplier Development Council
The NMSDC helps minority-owned businesses get certified as MBEs and then connects them to contracting opportunities with its network of corporate partners. Once you are MBE-certified and have a supplier and/or vendor relationship with one of NMSDC’s national or regional corporate members, you can access working capital loans, specialized financing and long-term financing through the NMSDC’s partner companies.
4. SBA Community Advantage Loans
The Community Advantage loan program works to meet the financial needs of small businesses in underserved markets. The program encourages local, mission-based lenders such as nonprofit organizations to make loans of up to $250,000 by guaranteeing up to 85 percent of the loan amount. The program is designed to service small business owners who might not qualify for traditional financing. For details, contact your local SBA district office.
5. SBA Microloan Program
Minority small business owners seeking loans of $50,000 or less should investigate the SBA Microloan program. Although it does not specifically provide small business loans for minorities, it makes loans of up to $50,000 to help small businesses start and expand. Microloan funds are provided from third-party lenders—usually nonprofit community-based organizations that offer management and technical assistance to small business owners along with the loan. To find local microlenders, contact your local SBA District Office.
6. Accion U.S. Network
International microloan organization Accion has a U.S. microlending program targeting low- to moderate-income business owners who have difficulty accessing capital through traditional channels.While not minority-specific, Accion’s U.S. member organizations offer loans from $200 up to $300,000 in all 50 states.
7. The U.S. Department of Commerce’s Minority Business Development Agency
The MBDA operates MBDA Business Centers nationwide that help minority small business owners start and grow their companies. The Centers are located in areas that have the largest concentration of minority populations and the largest number of minority businesses. Their advisors can refer you to local sources that provide small business loans for minorities.
8. Small Business Development Centers
Your local SBA District Office or Small Business Development Center (SBDC) can help you find and work with potential lenders who have experience providing small business loans for minorities.
9. MINERALS AND MINING ON INDIAN LANDS
This Department of the Interiors grant provides funding to both tribes and individual mineral owners seeking to make use of those resources on Indian lands.
10. COMMUNITY PROGRAMS TO IMPROVE MINORITY HEALTH GRANT PROGRAM
If you own a health-related small business, you can use this grant to spread information and awareness of health and healthcare for minorities.
President Obama began the Partnerships for Opportunity, Workforce, and Economic Revitalization Initiative to help communities hurt by the changing power industry. Look into the block grants the federal government awarded to state and local institutions, and if you’re nearby, see if you can snag a contracting opportunity or second-hand grant from them!
12. RURAL BUSINESS ENTERPRISE GRANTS
Available to small businesses, the RBEG program offers funds for rural development—including, by not limited to, infrastructural development, working capital for startup businesses, purchasing equipment, and real estate development. Smaller requests are actually given higher priority, and grants usually range between $10,000 and $50,000.
13. RURAL BUSINESS OPPORTUNITY GRANTS
Similarly, the RBOG program gives up to $100,000 to support training for business development, in order to stimulate the economies of rural communities.
14. COMMUNITY CONNECT GRANTS
If you live or operate in a rural area lacking an Internet broadband speed of 3 Mbps or more, and are looking to fix that, then check to see whether you’re eligible for thisDepartment of Agriculture grant. We’ve included this and the previous grants under the “Minorities” category because the government also often groups them together—it’s all about enfranchising the disadvantaged. Indian tribes are also a major target demographic for these programs.
15. WATER & WASTE DISPOSAL LOAN & GRANT PROGRAM
Though not explicitly targeted towards small businesses, this grant initiative—like many others—includes Federally-recognized tribes among its eligible applicants. If you’re a business owner operating in recognized tribal lands, and you’d like to invest in water or waste disposal, this cash could help out.
15. MILLERCOORS URBAN ENTREPRENEURS SERIES
Though not exclusively available to minority business owners, this grant program focuses on diversity in entrepreneurship. They award up to $150,000 to five winners, plus the consumer’s Choice award grant of $10,000.
16. FIRST NATIONS DEVELOPMENT INSTITUTE GRANT
The Native Arts Capacity Building Initiative gives up to six grants of $30,000 each to Native American institutions supporting arts and culture. However, to qualify you must already have programs in place supporting this goal. The program is also limited to those initiatives that support Native American artists in Minnesota, North Dakota, south Dakota, and Wisconsin, although if you have a strong case, make it!
17. TRIBAL ENERGY DEVELOPMENT CAPACITY GRANT
This program gives Federally-recognized tribes more resources to improve the economic influence of energy development in their areas. While this grant doesn’t provide directly to small businesses, look for the “trickle down” approach of funneling this government money into your business by securing the right contracts.
18. SMALL BUSINESS ADMINISTRATION 8(A) CERTIFICATION PROGRAM
This program is definitely not a grant—however, it is a federally-funded initiative aimed towards helping minority-owned small businesses capture more clients and work, so we decided to include it.
The SBA’s 8(a) program helps “socially and economically disadvantaged entrepreneurs gain access to the economic mainstream of American society”—or in other words, it guarantees minority-owned businesses special government contracts that they might otherwise not have special standing for.
19. Operation HOPE Small Business Empowerment Program
Designed for entrepreneurs from low-income communities, Operation HOPE offers workshops, counseling, templates and guides, and connections to networks of lenders (and the SBA). If you’re looking for small business loans for minorities, don’t lose HOPE!
20. The National African American Small Business Loan Fund
The joint effort of JP Morgan Chase and the Valley Economic Development Centers (VEDC), NASBLF serves minority-owned small businesses in low- or medium-income communities in New York, Los Angeles, and Chicago, providing access to capital, financial consulting, and technical help.
21. Minority Chamber of Commerce
The Minority Chamber of Commerce is a National Business Association non-profit that helps minority-run small business owners educate themselves, network with like-minded individuals, and connect with specialized suppliers.
Officially the Service Corps of Retired Executives, SCORE mentors small business owners for free, and provides more specialized workshops and seminar classes for an additional fee. They have special programs for minority small business owners as well, so make sure you explore everything they offer nearby!
23. EPA SDB Certification
The Environmental Protection Agency isn’t the only organization that gives special contracts to certified Small Disadvantaged Businesses—from the SBA or the Department of Transportation, for example—but it is a popular one. It also offers special resources and, of course, those all-to-elusive business grants.
24. Local Government Centers
Don’t forget to look through your state and city business programs and centers: many will have minority-oriented financial education and networking programs that you can take advantage of. For example, the city of Cleveland has an especially robust resources page, as does the state of Georgia.
25. National Minority Business Council
Different from the National Minority Supplier Development Council we wrote about above, the NMBC nevertheless also offers contracting opportunities, equity funding networking, free resources, and minority-owned small business news updates to its members. They also offer an entrepreneurship bootcamp in New York City!
26. Entrepreneurial Assistance Program
Though this initiative is located in New York, the Entrepreneurial Assistance Program has analogs in many other states. Whether you’re looking for business counseling, business plan development, financial education, networking opportunities, or something else, EPA centers can help—and with a focus on minority-owned businesses, they fit our list very well.
27. Minority Business Development Agency
The MBDA is yet another governmental organization offering tools and education to minority entrepreneurs. (According to their reports, minority-owned businesses are responsible for $1.4 trillion in annual gross receipts.) Don’t bemoan the existence of so many similar councils, committees, centers, and agencies for you to look at—it only takes one good connection to get the help your business needs, after all. The more, the merrier!
The best part about having such organizations on your side: Not only can they point you to potential lenders, but they can also make personal introductions, help you prepare a winning loan application package, and, once you get the loan, advise you on running your business so successfully that the lender won’t have a moment’s regret.
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from Fundera Ledger https://www.fundera.com/blog/2016/01/28/small-business-loans-for-minorities-2/