A Guide to Receiving Grants & Loans as a Minority-Owned Small Business
With the economy expanding, business owners are in need of reliable financial resources to respond to rising consumer/business demands such as equipment financing, payroll funding, and other working capital demand requirements making business grants and loans a necessity for minority-owned small businesses. In the U.S, minority-owned businesses generate approximately $1.8 trillion annually. Despite significant revenue generation, minority-owned businesses are less likely to receive funding than non-minority businesses. As of 2019, minority-owned small businesses with gross receipts under $500k have received only about 41% of U.S. distributed loans.
As the effects of the COVID-19 pandemic lessen and more Americans are going out to patronize businesses, minority-owned small businesses can seek funding through non-traditional lending institutions, government agencies, and nonprofit lenders. There are small business success stories during the Covid-19 pandemic and many minority and women own businesses have new resources they can turn to. Who qualifies for minority small business loans, and what financial resources are available for minority small business owners to help with small business cash flow management?
How to Receive Minority Small Business Loans & Grants?
Must Qualify as a Small Business
To qualify as a small business, businesses must meet the standards set by The SBA and The North American Industry Classification System (NAICS), which classify businesses according to type of economic activity. What qualifies as a small business varies by industry, but small businesses typically have a maximum of 1,500 employees and a maximum of $38.5 million in average annual receipts. An industry breakdown for small business size qualifications can be found on the SBA website.
Must Qualify as Minority-Owned
In order to qualify for a minority small business loan, the business must first be certified as a minority-owned business. For a small business to be considered “minority-owned,” it must be at least 51% owned, operated, and controlled by a minority group member. The National Minority Supplier Development Council (NMSDE), which has matched 12,000 certified minority-owned businesses to networks of corporate members, defines minority as any individual who is at least 25% Asian-Indian, Asian-Pacific, Black, Hispanic or Native American.
It is important to check the specifics of any potential loan resources, as some programs require all business members to belong to a minority group or may have additional requirements.
Business and Personal Check Credit Scores
Another aspect that influences business loan eligibility is your personal credit score. A business and the business owner must be able to show that they have a history of paying their bills. Many creditors will check personal credit scores in addition to the credit score of the business. Organizations like Financial Solutions can help minority-owned small businesses because often traditional banks will turn down small businesses whereas Financing Solutions small business line of credit requires no collateral and no personal guarantees making it easier for all businesses to qualify.
Finding Financial Resources – State & Local
It is important for business owners to research their state grant and loan resources. Many states offer unique financing solutions for minority business owners and entrepreneurs.
State-specific loan or grant organizations are industry-based and qualifications may vary.
SBA Loan Resources for Minority Small Businesses
SBA Loans for Minorities
The U.S. Small Business Administration (SBA) offers several business loans for minorities and women programs that are designed to favor minority-owned businesses. The SBA is a federal government agency with the purpose to promote small businesses. The agency actively promotes small business in the following ways:
- Access to long term capital
- Short term business loans
- Entrepreneurial development
- General Support
Let’s take a look at some of the best programs offered by the SBA for minority-owned businesses.
The purpose of the SBA 7(a) loan program is to help level the playing field for small businesses owned by socially and economically disadvantaged people or entities.” The most common uses for the SBA 7(a) loan are business expansion, equipment, and generation of working capital. The maximum amount awarded for this loan is $5 million.
Participation in the SBA 8(a) Program for economically disadvantaged and minority-owned small businesses increases the chances of receiving the SBA 7(a) loan.
Microloan programs are designed to help small businesses and certain not-for-profit childcare centers expand, particularly ones owned by minorities and women. The SBA offers microloans up to $50,000 with interest rates between 8 and 13 percent.
SBA Community Advantage Loans are available to entrepreneurs in underserved markets who need financing anywhere between $50,000 and $250,000. Advantage loans for minority business owners are provided up to a $250,000 loan, with interest rates falling between 7 and 10 percent.
SBA Loan For Nonprofits
Unfortunately, the government does not provide SBA loans to nonprofits but there are alternatives. Financing Solutions is the leading provider of lines of credit to small nonprofits.
Other Federal Loan Resources for Minority-Owned Businesses
The Business Consortium Fund (BCF), Certified by the U.S. Department of Treasury allows minority business owners to borrow between $75,000 to $500,000 through their Direct Lending Program.
The Community Development Financial Institution is a federally funded program that offers various microlending opportunities for underfunded communities and socially disadvantaged business owners.
The Indian Loan Guarantee Program’s Division of Capital Investment (DCI) supports American Indian and Alaska Native tribes and individuals through affordable financial solutions, low-interest rates, and the reduction of risk for lenders through government-based funding.
Grant Opportunities for Minority Businesses
The U.S Minority Chamber of Commerce provides minority businesses with equal opportunity financing, membership services, and economic development practices.
Grants.gov provides a master list of available federally funded grant programs. The website contains tips for writing grant proposals, grant agency listings, and other resources and advice for obtaining business grants.
The U.S. Department of Commerce, Minority Business Development Agency (MBDA) provides a variety of financing and grant opportunities for minorities. The MBDA offers minority-owned businesses access to capital, access to contracts, and entry into various markets.
Financial Solutions supports minority-owned businesses by helping to establish easy, fast, and inexpensive small business lines of credit. Businesses and non-profit organizations can access needed capital by filling out a simple, two-minute, no-cost application through Financial Solution’s Business Line of Credit and Non-Profit Line of Credit application which requires no documentation for an offer letter.
Financing Solutions is proud to have provided 1,000’s of minority and women-owned business lines of credit that have helped them build their existing businesses.