Small Business Startup Financing for Minorities

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Closing the funding gap for minority-owned businesses

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Small Business Financing for Minorities

While the American small business ecosystem is trending toward equity, it can still feel like the deck is stacked against minority entrepreneurs. Only 19% of small businesses are owned by minorities as of 2021, according to a recent report by Business.org. The most common demographic profile of an American small business owner is white, male, and over the age of 55.

Yet, minority-owned small businesses are becoming more commonplace than ever before. A 2022 survey from the US Census, for example, said that the number of Black-owned small businesses increased an impressive 8% between 2018 and 2019. In all sectors of the economy, the number of Black-owned businesses has grown since 2017.  

Small business owners from socially or economically disadvantaged backgrounds have long faced major challenges in finding funding. For one, they often do not have as much generational wealth to use. Studies show that financing applications submitted by minority-owned businesses research are 3 times more likely to get rejected.  

The tide appears to be turning on this, though. The federal government and other organizations have worked to reduce inequities faced by minority applicants in regard to small business financing. Not only is this the right thing to do, it makes business sense – giving small business owners of all backgrounds the tools and funding they need to succeed makes a more prosperous economy for everyone.

There are special funding programs earmarked for minority entrepreneurs. Additionally, there are forms of financing that are open to everyone that are worth researching. Understanding all of your options will guide you toward the right type of financing to drive your small business toward success.

What Are Minority Small Business Loans?

As the name suggests, minority small business loans are a financing options targeted at operations owned by people of minority backgrounds. These types of financing are aimed at getting funding to entrepreneurs who have historically had a really hard time securing cash to grow their businesses. While there is no hard definition for minority small business loans, some important options to look at include offerings from the U.S. Small Business Administration (SBA), your state, your city, and organizations like the Business Center for New Americans. Some local banks and cultural institutions in your region might also have funding earmarked for minority-operated small businesses.

If your business operates in an area considered underserved, you might be able to leverage this toward more funding, especially with loan programs backed by the federal government. Doing research before submitting any applications can really pay off when you have so many financing options to weigh.     

Who Qualifies for Minority Small Business Financing?

The definition of minority might change depending on what organization, financier, or agency is providing the funding. In New York state, for instance, a minority-owned business is defined as one that is at least 51% owned by Black, Hispanic, Asian, or Native American owners.

Some programs will consider economic background as a way to define minority status, not just race or ethnicity. The neighborhood or region where your business operates might be considered underserved, which opens up some possibilities for funding.

When seeking out minority small business loans, carefully read eligibility requirements along with the loan repayment terms.

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Business Financing for Minority Small Business Owners

Several funding options that can help minority-owned businesses get the capital they need. Growing your business can be easy peasy lemon squeezy with one of these financing options.

Grants

Grants are free money – they are basically loans you don’t have to pay back. There are a number of grant programs designed to help finance minority-owned small businesses. You’ll want to do your research, ensure that you match the specific requirements, and put solid consideration into your application. Grants tend to be hyper-competitive. If you have the time and dedication to go through the application process, it’s a great place to start. If it doesn’t work out (or if you just can’t handle the paperwork), you can try one of the many other financing options…

SBA Loans

The government is on your side. Thanks to the US Small Business Administration (SBA), several loans with mouth-watering rates and terms are made available each year. Here’s how it works: the government guarantees a portion of each SBA loan, reducing the risk for lenders. SBA loans can be competitive, and they definitely come with their fair share of paperwork, but they can be an essential resource for financially underserved entrepreneurs. Many minority business owners have used SBA loans to launch their companies. Small business owners looking for mentorship can even apply for the SBA 8(a) Development program.

Business Term Loans

The loan you think of when you search for “small business loan.” A business term loan can be used for a variety of business needs. Funds range between $5,000–2,000,000 with terms typically ranging from 1 to 5 years.

Business Lines of Credit

If your business is less established or you have less-than-stellar credit, you might consider a business line of credit. A business line of credit allows you to borrow against a set amount. You can borrow from the line of credit as often as you’d like and take as much as you need. So, if one month you need $5,000 for inventory to fulfill a purchase order and the next you need a couple thousand for new computer equipment, a line of credit might be for you.

Business Credit Cards

Business credit cards are an essential part of any small business financing portfolio. True, you got into this business to make money, but we all know that you’re going to have to spend money, too. Let your office supply purchases—and whatever else you need to buy—work for you. Many business credit cards allow you to earn rewards that you can funnel back into your business… or use to finance some much needed R&R.

If you don’t qualify for other forms of financing, a business credit card may be a solid short term solution to acquire the capital you need for your business. While no sound financial expert would recommend you rack up consumer credit card debt, business credit cards can be a solid financing option if done right. 0% introductory APR cards can be useful for financing larger purchases, as long as you pay off the balance within the introductory period. Learn more about how you can use business credit cards to your advantage in financing your business.

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How to Apply for Funding

We all know that minority business owners face hurdles through the traditional banking process. Black-owned businesses, for example, are twice as likely to get denied by a bank for a business loan. Through our lending marketplace, Lendio is making business lending easier and more accessible than ever. Complete a single, 15-minute application to access offers from 75+ premier business lenders. We’ll pair you with a dedicated funding manager, your personal finance expert, to walk you through your options and choose the right type of financing for your business needs.

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Fill out our smart application for instant matches with offers from our network of more than 75 lenders. Lendio also has a collection of powerful, accurate loan calculators so you can compare what sort of repayment situation you would face for a variety of different financing options. Again, it is always wise to research your options thoroughly before signing any finance agreement. Think about interest rates, repayment schedules, eligibility, and application requirements.

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FAQs

What Documentation Is Required With My Application?

To apply for small business financing, you’ll usually need to gather financial records and a business plan. You will typically expected to show that you have a good business track record and a plan for how to use the funding you seek. In most cases, financiers will run a credit check to see your credit score and lending history.

What Qualifies As A Minority-Owned Business?

The definition of a minority-owned business is different depending on the organization or government agency. Oftentimes, a minority-owned business is defined as one that is at least 51% owned by people of Asian-Indian, Asian-Pacific, Black, Hispanic and/or Native American descent. Sometimes agencies will look at the economic or geographic background of a small business owner in deciding minority status. Where the business is located might also be considered in granting minority-owned business status.

What Grants Are Available for a Minority-Owned Business?

When seeking out grants, it is often a good idea to start locally. Talk to other entrepreneurs and organizations, as well as your local Chamber of Commerce. Get in touch with any state or municipal agency that works with small businesses. Especially for grants on a small scale, there are probably multiple opportunities. Also, visit Grants.gov to see a long list of grants being offered by the federal government.  

Are There Business Financing Options for Minorities with Bad Credit?

Today there are many funding options for entrepreneurs with suboptimal credit. Many SBA loans and business lines of credit are pretty forgiving when it comes to credit scores, and there are alternatives cash advances and income factoring. However, you should expect to face higher interest rates and smaller funding amounts.

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“My team at Lendio was fantastic! Very professional, personable, and very responsive to my questions. They made the entire process simple. I highly recommend them!”

– Janice Y.

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