Top Minority Business Loans, Grants, and Other Funding Sources
Owning a business can be exciting and challenging. You may not know where to turn for support for minority-owned businesses.
Despite the many challenges of starting a business, the number of minority entrepreneurs in the U.S. is growing at a record rate. Over the last 10 years, the number of Latino/a/x-owned businesses has grown 34% — faster than any other demographic. And between 2007 and 2018, women-owned businesses grew 58%. (The number of firms owned by women of color grew at nearly three times that rate.)
For these businesses to succeed, they need access to resources and working capital — something that traditional financial institutions often fail to provide. In fact, minority-owned businesses are more likely than white-owned businesses to be denied credit. They’re also less likely to receive the full amount requested, and more likely to be discouraged from applying for credit for their business needs. Fortunately, there are a number of minority business loans that can provide better alternatives to fast-track your business.
What is a minority business loan?
A minority business loan is a type of financing provided specifically for underserved businesses (i.e., businesses owned primarily by entrepreneurs of color and/or immigrants). As such, minority business loans are usually easier for Black-owned businesses or women-owned businesses to secure than traditional financing. Some minority business loans also offer more flexible terms than traditional loans.
That means that minority business loans can help fill an important gap in funding equity. According to data made available by the US Federal Reserve, one in four Black-owned firms forgoes applying for credit. Of these, 56% say they just don’t want to accrue debt, while a full 60% say they don’t apply because they’re sure they’d be turned down. Women and other minority groups often report similar fears. If that sounds like you, a minority business loan could be an important stepping stone in gaining both financial strength and business confidence.
You can secure minority business loans from a number of organizations, including the U.S. Small Business Administration (SBA). Community development financial institutions and nonprofits are also good sources of financing options for minority entrepreneurs. The funding can usually be used for day-to-day operations, payroll, and purchasing new equipment.
Am I eligible for a minority business loan?
To be eligible for a minority business loan, you’ll need to prove that your business is at least 51% owned and controlled by people from minority communities. Some financing programs, such as the SBA’s 8(a) Business Development Program, require you to certify as a minority-owned business before you can apply. (You can obtain this certification through the SBA at certify.SBA.gov, then submit the certificate as part of your loan application.)
Most federal programs use the term “socially disadvantaged” instead of “minority.” According to the Code of Federal Regulations, this term indicates individuals who “have been subjected to racial or ethnic prejudice or cultural bias within American society because of their identities as members of groups and without regard to their individual qualities.”
To be considered socially disadvantaged, you have to have faced this kind of adversity because of circumstances outside your control. Traditionally, this includes Black Americans, Hispanic Americans, Native Americans (including Alaska Natives, Native Hawaiians, or enrolled members of a federally or state-recognized Indian Tribe), Asian Pacific Americans, and Subcontinent Asian Americans.
Eligibility requirements vary between lending providers and loan programs. Many loans are exclusively available to designated groups — like Black Americans or immigrants. Other loans have criteria concerning the longevity of the business or the stated use of the funds.
Types of minority business loans, grants, and other funding sources
There are a variety of business funding options available to minority-owned businesses. Here are a few of the most common.
Microloans for minority-owned businesses
Microloans are small, specialized business loans often available to small businesses through community or nonprofit organizations. These organizations usually offer microloans to existing businesses as working capital. The loan amounts frequently range from $500 to $50,000, and are often short-term loans ranging from three to six years.
Microloans are especially useful for minority-owned companies that find it difficult to secure traditional forms of financing. This can be due to biases embedded in the U.S. financial system, or to limited credit history and/or bad credit. Since microloans are smaller and often cater to businesses run by minority or underserved entrepreneurs, they tend to be easier to access and have fewer compliance requirements. They also tend to have lower interest rates than the average loan from a more traditional financial institution.
One of the organizations providing these microloans is Accion Opportunity Fund (AOF). AOF works closely with small business owners to provide them with fairly-priced loans, educational resources, coaching, and support networks. AOF provides these services in both English and Spanish. More than 90% of AOF’s clients are people of color, women, and/or low-to-moderate income individuals.
Community Development Financial Institutions
A community development financial institution (CDFI) is a private financial institution that provides credit and financial services to underserved markets and communities. CDFIs are a big umbrella that include the following:
- Community development banks (CDB)
- Community development credit unions (CDFU)
- Community development loan funds (CDLF)
- Community development venture capital funds (CDVC)
- Community development corporations (CDCs)
Many CDFIs work primarily in low-income or rural areas, as well as with underserved communities. That means many of their loans and other financial products were created with minority or underserved business owners in mind. So if you’re looking for minority-business loans, CDFIs should be on your list.
There are almost 1,000 in the US, operating in every state and the District of Columbia. You can find CDFIs near you at CDFI.org. It is important to note that each CDFI is different because each one aims to serve the needs of its local community.
Lines of credit
Though not limited to minority-owned businesses, a line of credit is another option for short-term financing available through banks, credit unions, and some online lenders. A line of credit is a form of revolving credit that allows you to borrow or pay back any amount of money up to a certain pre-approved amount. This works similarly to a credit card or overdraft: Rather than receiving a lump sum of cash upfront, you have a credit limit with flexible repayment terms.
Having a business line of credit allows you to take out funds to use for supplies, cover payroll, run marketing campaigns, buy real estate, or increase your working capital. Many business lines of credit impose no restrictions on the use of funds. However, lines of credit should only be used as a short-term or emergency solution. They tend to have very high interest rates and are therefore one of the more expensive ways of securing funding.
Your access to a line of credit will also depend on your credit history, which means it will be difficult — and more expensive — to get a line of credit if you have a bad credit score. Like with any other loan, to get a line of credit you’ll need to apply to the financial institution with your business accounts, financial history, and desired amount.
Small business grants
Unlike lending programs, small business grants don’t have to be repaid. That’s one of the reasons they’re so sought after by small business owners. Grants come in a variety of formats and sizes, and from a variety of sources, including the government. Generally, they’re intended to help spur economic development in certain sectors, or to provide a boost for struggling new businesses.
To find federal, state, or local government grants, go to grants.gov, where you can search for currently available grant opportunities. A grant won’t provide funding to start a business, but it can help you through a difficult stretch or to support new or innovative work your company is doing. State and local grants are more likely to cater to specific minority groups and underserved communities than federal grants.
It’s worth keeping in mind that grants specifically for minority-owned businesses tend to be rarer among government grants in general than from other sources. Private grants, however, are extremely detailed in who they’re intended to support. That’s why they tend to offer the best opportunities for minority small business owners. For example, the Asian Women Giving Circle provides up to $15,000 to businesses led by Asian American women. (You can find this and other grants through websites like GrantWatch.)
Accion Opportunity Fund also offers small business grants. For more information, visit AOF’s website.
The U.S. Small Business Administration is the go-to resource for all things small business. In addition to loans — some of which are offered specifically for minority-owned businesses — the SBA has a learning center for small business owners. This includes a section exclusively for women entrepreneurs. The organization also has small business development centers (SBDCs) all over the country that provide counseling and training to small businesses.
Funding options from the SBA are extensive. The SBA guarantees loans ranging from $500 to $5.5 million. These include:
- The 7(a) Loan Program is SBA’s most common loan program. It provides financial help to small businesses with special requirements. These loans can be used for short- and long-term working capital or for refinancing current business debt. They can also be used to purchase real estate or equipment.
- The 504 Loan Program provides long-term, fixed-rate financing of up to $5 million. These loans can be used for any major fixed assets that promote business growth and job creation. Only for-profit businesses are eligible for this loan. Your business’s tangible net worth must be less than $15 million, and your average net income must be $5 million or less (after federal income taxes) for the two years after you apply.
- The SBA also offers microloans, that is, small-sized loans of up to $50,000. These are offered through nonprofit community-based organizations with experience in lending, management, and technical assistance. The average size of an SBA microloan is $13,000. The funds can be used for working capital, inventory, supplies, furniture, fixtures, and equipment.
In addition to loans for minority businesses in particular, the SBA runs these three programs:
- The 8(a) Business Development program assists disadvantaged small businesses. Through this program, participating businesses can exclusively compete for certain federal contracts.
- The HUBZone program also aims to provide federal contracts to small businesses. The goal of this program is to award at least 3% of the total available federal dollars each year to HUBZone-certified companies, i.e., businesses in historically underutilized business zones.
- The SBA Mentor-Protégé program allows small businesses to get mentorship and business development help from bigger companies.
Crowdfunding is a relatively new source of small business financing. It can be especially beneficial for start-ups that already have strong communities or customer bases. Crowdfunding for businesses is generally done in one of three ways:
- Offering rewards: This is the most traditional form of crowdfunding, and usually takes place on an online platform. If you’re fundraising in this way, you generally offer tiered rewards to people who back your campaign. Kickstarter is the best known of all crowdfunding platforms. The caveat is that most online platforms charge some kind of fee, and some charge a penalty if you don’t raise your goal amount. Be sure to read the fine print before you sign up.
- Low-interest loans: Popularized by Kiva, this crowdfunding model allows small-business owners to get no-interest loans that they can pay back on a flexible schedule. Small business owners are able to set the amounts they want and multiple lenders are able to support them with individual loans of as little as $25.
- Equity-based backing: Small businesses seeking larger investments can look to platforms like Seedrs. Seedrs lets you raise capital from investors by offering them equity in your company. (You can learn more about the pros and cons of equity-based financing here.)
Where can I find minority business loans and other funding sources?
Tracking down funding options can be a time-consuming process if you don’t know where to look. Here are some resources to help streamline your search.
On a mission to foster vibrant small business communities through mentorship and education, SCORE is the largest business network in the U.S. It connects volunteer business mentors with entrepreneurs, who then benefit from expert, one-on-one mentoring, both remotely and in-person. SCORE also offers webinars, courses on demand, local events, and a library of online resources.
While not exclusive to minority businesses, SCORE understands that minority business owners may need specialized resources. It aims to provide those through its platform SCORE for All.
The Minority Business Development Agency (MBDA)
The Department of Commerce’s Minority Business Development Agency (MBDA) is the only federal agency solely dedicated to the growth of minority business enterprises. The agency also works to help minority businesses become more competitive in global markets.
To do that, the MBDA helps organize funding opportunities through independent investors. It routinely launches educational initiatives, and it offers networking options to connect minority businesses with contract opportunities.
Your Local Small Business Development Center
Many communities have small business development centers (SBDCs) that provide local knowledge and resources to small business owners. This can include everything from legal and technical assistance to help with government contracting and business planning. New York’s Corporate Alliance Program (CAP) is one good example of a SBDC that provides many of these services for free.
The National Minority Supplier Development Council (NMSDC)
The NMSDC connects minority businesses with both corporations and public sector organizations. The goal is to foster mutual business opportunities, and ultimately advance economic equity for minority business owners. NMSDC’s events and conferences are great ways to build connections that could advance your business.
Accompany Capital was originally part of the New York Association for New Americans, an organization created in 1949 to resettle World War II refugees. Today, it supports immigrant, refugee, and women entrepreneurs in the United States through access to affordable credit, financial education, and training in best business practices. So far, the organization has given out $43,617,527 in small business loans, assisted 8,416 businesses, and created 2,429 jobs.
Secure funding for your minority-owned small business
Today, minority businesses can work with a variety of lenders, grant providers, and financial organizations that understand their needs. Accion Opportunity Fund is one such organization. AOF supports small, minority-owned businesses through loans in a range of sizes that are customized to meet each business’s individual needs. Find out more about Accion Opportunity Fund loans, and apply today to get financing for your minority-owned small business.