For minorities looking to become small business owners — or for established ones looking to expand — there can be obstacles involved in taking that next step.
In 2015, Inc.com shared an Associated Press report on loan rejections by minority candidates: A survey showed that 23 percent of Asian business owners had been rejected, 20 percent of black business owners and 19 percent of Hispanics. All three percentages were higher than the general owner number (14 percent).
“If you ask any small business what their No. 1, 2 and 3 concern is, it will be access to capital,” according to Ron Busby, head of the US Black Chambers Inc, in the AP story. “As you relate to black businesses, it’s their No. 1, 2, 3, 4, 5 and 6 concerns in reference to growing, starting or expanding their firms,” Busby said.
There is also this report by Fundera, which examined a study by Brigham Young University. The project gathered nine people to apply for small business loans totaling $ 60,000. Three of the nine were black, three were white and three Hispanic. All were supplied with the same background information and business type. But the nine did not receive equal treatment.
“… The minority loan applicants received less information about loans and less assistance from loan officers, and were asked more questions about their personal finances,” the story says.
Here’s a look at how minority entrepreneurs can approach the loan process, and several avenues that may help to achieve small business loans.
It’s important to get organized before seeking out a loan. Here are several tips from Fundera for minority business owners.
- Credit score: No surprise here — the higher the better. “Lenders know that you, the owner, is most likely paying the loan back, so they want to know how you’ve historically dealt with debt.”
- Cash flow: A logical concern for lenders. “They’ll look at things like your bank statements to figure this out. If you have a lot of overdrafts or NSFs, that might make them worry.”
- Revenue: The amount of money coming in will be a big factor in a lender’s decision. “Lenders want to know that you’re making enough to afford the loan. Revenue requirements vary by lender, but many have hard minimums. Be sure to ask a lender what their requirements are if you’re not sure if you’ll qualify.”
- Longevity: An established business can have a better shot at getting a loan. “Lenders want to know you’ll be around to pay them back.”
Online lenders vs. banks
The old-school manner of getting a loan usually went through a bank. That’s still a legitimate route, but online lenders may be a better option. As Steve Nicastro writes for nerdwallet.com, online lenders are usually faster, “and with less stringent requirements.”
“The cost for this convenience is a higher APR,” he says. “These lenders don’t specialize in minority clients, but if you don’t qualify for a bank loan because you have bad credit or a limited business history, or you don’t have any collateral — or you simply can’t afford to wait months for financing — they provide a good option.”
Options by credit score
As mentioned, credit score can mean a great deal in the loan process. But just because it isn’t as high as you’d like doesn’t mean there aren’t possible loan avenues to examine. Nicastro breaks down possibilities for different scores in his nerdwallet.com story. For example:
- A business owner with a year or more in business and a credit score of 600 or higher can work with StreetShares: “It’s also a good option for veterans; more than 60 percent of StreetShares’ borrowers are former service members. Owners of more established businesses who can afford to wait longer for financing can turn to SmartBiz, which provides Small Business Administration loans at a faster pace than traditional banks. You’ll need relatively high annual revenue to qualify.”
- For those with a 500 and higher score: “Kabbage, which doesn’t have a minimum credit score requirement, is a good option for business owners with poor credit who need fast cash for working capital. The lender provides lines of credit that you can tap into and repay on an as-needed basis. Business owners looking for expansion financing can turn to OnDeck, which offers term loans of up to $ 500,000 and requires a minimum personal credit score of 500.”
Explore what’s out there
It may take some digging, but there is an array of available loans that can benefit minority businesses. Fundera has a list of 28 options. Here’s a sample:
- Small Business Administration: The SBA’s Community Advantage loan “encourages local, mission-based lenders such as nonprofit organizations to make loans of up to $ 250,000 by guaranteeing up to 85 percent of the loan amount. The program is designed to service small business owners who might not qualify for traditional financing, so it is a great option if you are looking for minority business loans.” Additionally, the Fundera list includes the SBA’s microloan program for those seeking $ 50,000 or less.
- National Minority Supplier Development Council: This organization assists in getting people certified as minority business owners, and then providing networking opportunities with corporate partners, according to Fundera. “Once you are MBE-certified and have a supplier and/or vendor relationship with one of NMSDC’s national or regional corporate members, you can access working capital loans, specialized financing and long-term financing through the NMSDC’s partner companies. It takes a little work to get there, but is a great source for small business loans for minorities.”
- POWER: This stands for Partnerships for Opportunity, Workforce, and Economic Revitalization, which was started by President Barack Obama. The goal: “… to help communities hurt by the changing power industry. Look into the block grants the federal government awarded to state and local institutions, and if you’re nearby, see if you can snag a contracting opportunity or second-hand grant from them.”
- MillerCoors Urban Entrepreneurs Series: This is a grant program that, as Fundera clarifies, is not just for minority business owners. But it “focuses on diversity in entrepreneurship, which can be a good option if you are looking for minority business loans. They award up to $ 150,000 to five winners, plus the consumer’s choice award grant of $ 10,000.”
- National African American Small Business Loan Fund: JP Morgan Chase and the Valley Economic Development Centers team up for this program. It serves “minority-owned small businesses in low- or medium-income communities in New York, Los Angeles, and Chicago, providing access to capital, financial consulting, and technical help.”