The Best Minority Business Loans & Financing Resources

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 — the 7(a) and 504 are the most popular —  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.

Merchant Maverick recommends SmartBiz to borrowers who need help navigating the SBA loan application process.

Though the SBA doesn’t generally lend directly, it offers the following services through its SBA-approved lenders:

• Term loans up to $5 million
• Lines of credit up to $5 million

With regard to SBA loan rates, SBA 7(a) loans have rates between 10.25% and 12.75%, while SBA 504 loans have rates between 5.56% and 5.59%. Disaster relief loans like EIDL or PPP may have lower rates. Repayment term lengths can be up to 10 years.

• Time in business: 1 year
• Credit score: 600+

Loans over $25,000 generally require collateral.

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 specializing in lending to underserved communities and borrowers. Around 60% percent of its borrowers are based in minority communities. You can borrow up to $100 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.

Accion Opportunity Fund offers term loans up to $100,000.

Accion’s rates range between 5.99% and 16.99%.

• Time in business: 12 months
• Credit score: No minimum given
• Revenue: $50,000/ year

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 bank-based 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.

CDFI rates and fees will vary by bank.

Eligibility requirements for CDFI loans may vary by institution. While banks generally prefer to work with borrowers with good-to-excellent credit, CDFI’s may be more lenient in some cases.

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 and businesses owned by women and veterans. The program is available only on the West Coast — California, Oregon, and Washington.

Union Bank offers minority-focused financing in amounts up to $2.5 million. General financing is also available in amounts up to $1 million. Repayment terms range between 12 and 84 months.

Union Bank does not divulge its rates publicly. You can apply for a fixed-rate loan, either unsecured or secured, with variable repayment terms.

Here are the qualifications for the Business Diversity Lending Program specifically:

• Time in business: 2 years
• Credit score: No minimum given
• Revenue: Less than $20 million/year

The business must be at least 51% minority-owned, operated and controlled and managed by U.S. citizens. The business must also be located in CA, OR, or WA.

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 U.S. offers small business loans up to $15,000 with repayment terms of 36 months.

Because Kiva U.S.’s loans are crowdfunded, they have a 0% interest rate and no additional fees.

Kiva U.S. does not require any minimum credit score, time in business, or revenue to qualify. However, you do have to be at least 18 and have a U.S. business that isn’t in bankruptcy proceedings. You’ll also need to be able to raise the capital for the loan through crowdfunding.

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.

Fundbox doesn’t use the typical standards for lending. You don’t have to have been in business very long, and your credit score needs to be over 600. 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.

Fundbox offers business lines of credit up to $150,000.

Fundbox’s rates start at 4.66% for 12-week repayment terms and 8.99% for LOCs with 24-week repayment terms.

• Time in business: 6 months
• Credit score: 600
• Revenue: $100,000/year

Another strategy for getting around lending gatekeepers is simple brute force — 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.

Lendio offers a wide variety of services, including:

• Short-term loans up to $500,000
• Term loans up to $2 million
• Lines of credit up to $500,000
• Merchant cash advances up to $200,000
• SBA loans up to $5 million
• Equipment financing up to $5 million

Lendio’s rates and fees vary depending on the lender you’re matched with. Low-interest options like SBA loans are available, as are more expensive, subprime options.

Lendio recommends a credit score of at least 550, but keep in mind that each of the lenders in Lendio’s network have their own requirements. The higher your credit score, the longer you’ve been in business, and the higher your revenue, the more matches you’re likely to receive.