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The 9 Best Loans & Organizations For Your Minority-Owned Small Business

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The financial industry likes to think of itself as a rational creature that makes lending decisions purely based on merit. In practice, however, this is frequently not the case. The fortune-telling business we call finance produces casualties. For minorities seeking business loans, the normal challenges of financing can be compounded by lending biases, systemic racism, language barriers, and geographical positioning in communities that have been written-off by many lenders.

It’s not all bad news, though. As the problem is, at this point, very well documented, many institutions and organizations have programs designed to circumvent these issues and get money into the hands of minority entrepreneurs.

 

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SBA Microloans
Best for businesses and entrepreneurs with good credit.

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Accion
Best for businesses with poor credit.

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CDFI
Best for businesses operating in economically distressed communities.

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Business Center for New Americans
Best for immigrant-owned businesses within New York City.

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Opportunity Fund
Best for businesses based in California.

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Other Featured Options:

  • Union Bank: Best for West Coast businesses looking for high borrowing amounts.
  • Kiva U.S.: Best for businesses looking to raise small amounts of money with zero interest.
  • Fundbox: Best for businesses with poor credit looking for a line of credit.
  • Lendio: Best for businesses short on time.

Read more below to learn why we chose these options.

The Best Minority Business Loans

Minority business loans aren’t fundamentally different than any other type of loan. Instead, the underwriting process takes into account obstacles and practices commonly encountered by minority business owners. Here are some of the best minority business loan options we’ve come across.

 

1. SBA Loans

SBA Microloans



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One way to deal with the dysfunctions of the private lending market is to step around them entirely. The federal Small Business Administration (SBA) exists largely to help businesses that would otherwise be denied funding by guaranteeing 50%-85% of loans underwritten by third parties. These loans β€” the 7(a) and 504 are the most popular β€”Β  generally have better rates and longer terms than the applicant would normally be able to access on their own.

Of particular interest to minority business owners, however, might be the SBA microloan program. A microloan is defined as a loan that is $50,000 or less. Many microlenders specialize in lending to underserved communities. These loans can be used for almost any business-related purpose, including starting a business from scratch. And unlike many microloans offered without an SBA-guarantee, you can take up to six years to pay off your balance.

Pros

  • Good rates
  • Long repayment term
  • Suitable for startups

Cons

  • Long application process
  • Slow time to funding
  • Partial down payment may be required for startups

 

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2. Accion

Accion



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In addition to the specific challenges faced by minority business owners, there are also some obstacles that can keep any borrower from getting access to capital, credit being one of the most common. Luckily, there are lenders such as Accion that are willing to work with people whose credit has fallen below the 600 mark.

Accion is a nonprofit organization that specializes in lending to underserved communities and borrowers. Around 60% percent of its borrowers are based in minority communities. You can borrow up to $250K (or as little as $300) with Accion’s small business loans, contingent on your income-to-debt ratio. While the organization de-emphasizes credit, Accion does want to see that you’re not behind on any of your bills and that you don’t have any bankruptcies within the last 12 months. Startups will also have to produce a business plan and a partner referral. Be prepared to offer up a lot of information during the application process.

While Accion’s rates are good as subprime credit goes, they can potentially be a bit expensive, with APRs ranging widely from 7%-34%. If your offer falls on the lower end of that scale, there shouldn’t be any issues, but applicants on the higher end may want to make sure they don’t have any better options.

Pros

  • Has lower borrower qualifications than banks do
  • Monthly repayments
  • Suitable for startups

Cons

  • Rates can be expensive
  • Some additional fees charged
  • The application process may require a lot of information

 

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3. Community Development Financial Institutions (CDFIs)

CDFI



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To qualify as a CDFI, banks have to apply to the federal Community Development Financial Institutions Fund and prove that they’re primarily lending to under-served markets. CDB can have either a national or a state charter and serve low-to-middle income communities. While not explicitly targeted at minority communities, they do often work in and with them. The Bank Enterprise Award Program, in particular, is targeted to communities where at least 30% of residents have incomes that are less than the national poverty rate and where unemployment rates are at least 1.5 times the national unemployment rates.

CDFIs usually offer the full-service spectrum of lending products, from checking accounts to home mortgages, lines of credit, and, of course, business loans. You can find some of these institutions through the Community Development Bankers Association.

Pros

  • A full spectrum of banking services
  • Rates are competitive with other community banks
  • Great for businesses operating within economically distressed areas

Cons

  • Availability is contingent upon geography
  • You may still need to meet relatively high qualifications (credit, etc.)
  • Not targeted specifically at minority-owned businesses

 

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4. Business Center For New Americans

Business Center for New Americans



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The Business Center for New Americans is a CDFI based in New York City that serves that city’s substantial population of immigrants with microloans, business lines of credit, SBA loans, and other financial products and services.

For microloans, the BCNA does not require a minimum credit score (although you must match 20% of the loan amount with equity, have sufficient cash flow, and not have a pattern of non-repayment of other debts). If you go this route, you might be eligible for a loan between $500 and $50,000 with up to three years to repay.

For a business line of credit, you could receive a credit line ranging from $10,000 to $50,000. BCNA only charges you interest (at a fixed rate of 10%) on the amount you withdraw each month.

For credit-building loans, the BCNA provides a “credit enhancement loan” of $500 to $2,000 alongside a free one-on-one consultation and access to free credit enhancement workshops. These loans have an 8.25% interest rate and allow six to 12 months to repay.

Pros

  • Multiple forms of lending available
  • Suitable for startups
  • Translation services available in 14 languages

Cons

  • The organization’s scope is primarily New York City
  • Offices are only in Queens and Manhatten

 

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5. Opportunity Fund

Opportunity Fund



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Opportunity Fund grew out of a cooperative project between Silicon Valley donors and, as such, primarily serves California. However, this nonprofit does lend in a more limited capacity to Nevada, Washington, and New York. If you live in another state, Opportunity Fund may be able to help you through its lending partners, typically Lending Club.

You can borrow between $2,600 to $250,000 directly from Opportunity Fund, which is considerably more than the typical microloan. The trucking/mobile food program caps at $200,000. These loans typically have an APR of 7.9%-18.0%.

Opportunity Fund doesn’t have explicit credit requirements, only that you’ve been in business for at least 12 months.

Pros

  • No credit score requirements
  • Rates tend to be inexpensive
  • Monthly repayments

Cons

  • Primarily available only to businesses in California, with limited service to Nevada, Washington, and New York
  • Not available to businesses in some industries
  • Funds can take a while to disburse

 

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6. Union Bank

Union Bank



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Union Bank is a part of the Tokyo-based Mitsubishi UFJ Financial Group, which operates in numerous countries around the world, including the United States. Within the US, Union Bank primarily operates in California, Georgia, Illinois, Oregon, Texas, and Washington, with the majority of its branches located on the West Coast.

You can apply for a fixed-rate loan, either unsecured or secured, with variable repayment terms. If you get a UCC- or equipment-secured loan, you’ll have seven years to repay. If you get owner-occupied commercial real estate financing, you’ll have 25 years. Union Bank also provides a variable-rate line of credit, either unsecured or secured. The bank’s line of credit is subject to annual renewal.

While Union Bank’s services and rates are fairly typical for a big bank, the institution does have a well-developed diversity lending program. This program offers up to $2.5 million in funding for businesses owned at least 51% by Hispanic, American Indian, Asian and other groups defined by the Equal Employment Opportunity Commission as well as businesses owned by women and veterans. The program is available only on the West Coast β€” California, Oregon, and Washington.

In addition to the qualifications above, qualifying businesses need to have been in operation for at least two years, have annual sales of $20 million or less, and the owners must be American citizens.

Pros

  • High borrowing amounts
  • Multiple lending products available
  • Monthly repayments

Cons

  • Diversity lending program limited to the West Coast
  • Banking products have a lot of fees
  • Funds can take a while to disburse

 

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7. Kiva U.S.

Kiva U.S.



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If you’re an entrepreneur looking to raise a small amount of money to get your business idea off the ground, and you’re willing to think outside of the box, Kiva can potentially get funds into your hands, interest-free.

Kiva lends based on metrics it calls “social underwriting,” which attempts to measure your overall character and standing within your community. Kiva is a form of crowdfunding, so you’ll likely have the most success if you’re a known quantity. Kiva has both a public and private funding period, during which individuals and entities can invest in your business. Funding amounts range from $25-$10,000.

Keep in mind that while Kiva uses crowdfunding to source your interest-free loan, it is still a loan that you have to pay back. Term lengths range from six to 36 months.

Pros

  • Interest-free loans
  • No credit check
  • Suitable for new businesses

Cons

  • Low borrowing amounts
  • Involved application process
  • Funds can take a while to disburse

 

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8. Fundbox

Fundbox



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Fundbox isn’t explicitly aimed at minority-owned businesses, but its method of underwriting avoids many of the dysfunctions that those businesses encounter in the lending process.

Focused on offering financial products for small businesses, Fundbox has several loan solutions. The company’s product line includes invoice financing (called Fundbox Credit), a line of credit (called Direct Draw), and its B2B payment service (called Fundbox Pay). Fundbox allows business owners to take out a credit line of up to $100,000. You’ll see a term length between 12 and 24 months, and borrowing fees start at 4.66%.

Fundbox doesn’t use the typical standards for lending. You don’t have to have been in business for a specific amount of time, and your credit score just needs to be over 500. If applying for Fundbox Credit, you’ll need to have been using compatible accounting or invoicing software for at least two months. If applying for Direct Draw, you’ll need to have a compatible bank account that’s been open for at least three months.

Pros

  • Has lower borrower qualifications than banks do
  • A fast and easy application process
  • Low credit requirements

Cons

  • Rates can be expensive
  • Repayments are required frequently

 

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9. Lendio

Lendio



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Another strategy for getting around lending gatekeepers is simple brute force β€” apply to a large number at once to find the ones willing to cut you a decent deal. One of the easiest ways to do this is to use a loan aggregator such as Lendio.

Lendio allows applicants to apply to its entire network of lenders with a single application. Available products include short-term loans, merchant cash advances, SBA loans, and more. Lendio won’t charge you directly for using its service (the company gets its cash from partner lenders). Other fees can vary depending on whom you get your loan from.

Lendio has three recommended eligibility requirements for business applicants: six months in business, a credit score of at least 550, and $10,000 per month in revenue. While these suggested qualifications aren’t hard and fast, you may want to look elsewhere if you don’t meet them.

Pros

  • Has lower borrower qualifications than banks do
  • High borrowing amounts
  • The application process is fast and easy
  • Multiple types of financing available

Cons

  • Rates can be expensive
  • Funds can take a while to disburse

 

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Why We Recommend These Lenders For Minority-Owned Businesses

While the causes are numerous and complicated, there’s no doubt that minority-owned businesses collectively face challenges beyond those of the average white-owned business.

Despite higher growth in minority-owned businesses in the US relative to those that are white-owned, those businesses still appear to face challenges that threaten their stability. In 2017, approximately 55% of white-owned businesses were profitable, compared to 51% of Asian-owned businesses and 46% or Black-owned businesses. Revenue growth of Black-owned businesses also lagged behind that of white-owned businesses, with 49% of the former reporting revenue growth compared to 58% of the latter. Data isn’t yet available on how the COVID-19 pandemic has affected small businesses, but it’s probably not a stretch to say that minority-owned businesses may be more vulnerable to disruption.

Low credit scores remain one of the bigger barriers to funding, with Black and Hispanic owners more likely to have to rely on personal funds to finance their businesses. Twenty percent of Black and 15% of Hispanic business owners have credit scores below 620 (often the cutoff rate for attaining financing from traditional lenders), compared to 9% of Asian and 7% of white business owners.

In terms of applications, business lenders denied 38% of Black applicants, 33% of Hispanic applicants, 24% of Asian applicants, and 20% of white applicants. Of successful applicants, 49% of white applicants received the full amount of financing asked for, compared to 39% of Asian, 35% of Hispanic, and 31% of Black applicants. Reported dissatisfaction with lenders was also higher for Black and Hispanic borrowers.

 

Organizations That Help Minority-Owned Businesses Get Financing

Getting financing can be a complicated and anxiety-inducing process, especially if you’ve never done it before. In addition to the lenders/organizations above, these organizations may be able to help you get financing.

Minority Depository Institutions (MDIs)

Banks with at least 51% minority ownership can qualify as MDIs so long as they also primarily serve communities that are predominantly “Black American, Asian American, Hispanic American, or Native American.”

Working with one of these institutions β€” as long as your business is operating within a qualifying community β€” can help you circumvent some of the racial biases that plague lending. You can find them in most major and secondary cities.

State Programs & Nonprofits

Programs such as New York’s Minority and Women Revolving Loan Trust Fund offer small, low-interest loans to resident business owners. These funds are provided without a profit motive, so they tend to have lower interest rates than comparable bank loans. On the other hand, programs of this sort generally don’t have deep pockets, making them less ideal for businesses seeking large amounts of money.

The SBA 8(a) Program

You may have heard of the SBA 7(a) loan. Counterintuitively, the 8(a) program isn’t a loan at all. It’s a business development program designed to help business owners who are minorities and/or have an average gross income under $250,000 for the last three years and assets worth less than $4 million. SBA 8(a) certification qualifies businesses for a number of perks, including preferential treatment for government contracts.

 

Other Resources For Minority-Owned Businesses

Financial assistance doesn’t only come in the form of loans. Minority business owners frustrated with the lending scene may want to look into grants. For the unfamiliar, grants are “free money” offered by entities ranging from federal, state, and local governments, to nonprofits, and private corporations. Some of these are targeted specifically at minority-owned businesses.

While grants don’t have to be paid back, they are often extremely competitive, so be prepared to spend some time and effort getting your application to stand out amongst the crowd.

 

Minority Business Loan FAQs

Some answers to commonly asked questions:


Where can I get a minority business loan?

Our list above, while not exhaustive, is a great place to start. I’d also recommend looking into any organizations operating within your locality that are dedicated to helping minority-owned businesses. Failing that, try contacting your local chamber of commerce or state business development agency and asking what programs are available in your region.


How do I qualify for a minority business loan?

Most organizations consider a minority-owned business to be one in which at least 51% of the company is owned by a non-white owner. Beyond that, each loan may have different qualifications with regard to credit ratings, minimum time in business, geographic location, etc.


Are there grants for minority-owned businesses?

Yes, and quite a few. Grants can be an excellent way to finance your businesses without accruing any debt, though they are highly competitive. Check out our guide to grants for minority-owned businesses.


 

In Summary: The Best Minority Business Loans

  1. SBA Microloans: Best for businesses and entrepreneurs with good credit.
  2. Accion: Best for businesses with poor credit.
  3. CDFI: Best for businesses operating in economically distressed communities.
  4. Business Center for New Americans: Best for immigrant-owned businesses within New York City.
  5. Opportunity Fund: Best for businesses based in California.
  6. Union Bank: Best for West Coast businesses looking for high borrowing amounts.
  7. Kiva U.S.: Best for businesses looking to raise small amounts of money with zero interest.
  8. Fundbox: Best for businesses with poor credit looking for a line of credit.
  9. Lendio: Best for businesses short on time.
Chris Motola

Chris Motola

Finance Writer at Merchant Maverick
Chris Motola is a writer, programmer, game designer, and product of NY. These days he's mostly writing about financial products, but in a past life he wrote about health care and business. He's a graduate of the University of Central Florida.

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