Do you want to access minority business loans but you don’t know how to apply?If YES, here is a complete guide on how to get a small business loan for minority.
One of the most common business glitches that any business person experiences when setting up a business is finances, that is startup capital. This is even more common where the owner of the business belongs to the group the society tags as minority.
What is a Minority Business Loan?
According to Wikipedia, a minority group refers to a category of people differentiated from the social majority. The differentiation can be based on one or more observable human characteristics including; ethnicity, race, religion, disability, and wealth or health orientation.
And for lending purposes, minorities are usually classified as African-American, Hispanic-American, Asian-American, Alaskan Native, Pacific Islander or American Indian individuals. A minority business is at least 51% owned by a member of one of these groups. Often, your business will need to be certified as a minority business enterprise (MBE) or disadvantaged business enterprise (DBE) to be able to apply for a minority business loan.
For years, entrepreneurs belonging to minority communities have played a prominent role in driving the U.S. economy forward. In fact, minority owned businesses make up almost 15 percent of the 28 million businesses and they employ more than 5.9 million workers in the country, according to CNBC.
Other studies equally show that minority entrepreneurs only make up 8.5% of all would-be business owners pitching their ideas to angel investors—and only 15% of them are successful, compared to 22% of all entrepreneurs together.
When it comes to starting up a business without money, the most viable option minorities have is to get a loan.
There are loan programs designed to assist businesses that are owned by ethnic and gender minorities. In fact, many of these programs don’t even require eligible businesses to be wholly minority owned. This means your business may qualify for one of these loan programs even if the minority business owners have less than 100-percent control over the company.
These loans might come from the SBA, microlenders, or non-profit companies. While there is no one type of minority business loan, this kind of financing generally helps business owners who lack financial resources access credit.
While minority business loans might seem hard to find, there are actually more credit sources available to minority entrepreneurs than you might think. In this guide, we rounded up some of the best minority small business loans and grants for minority entrepreneurs.
How to Get Small Business Loans for Minority in 10 Easy Steps
1. Check your credit score: credit score is very important in America when giving or receiving any kind of loan. A low credit score won’t get much attention even in a minority lending situation, so you need to make sure that your credit report is at par before you begin the minority business loan process. If there are errors on your report, ask the credit bureau to investigate and remove them.
2. Get your business plan: a business plan is also one of the things that would be required of you to get a minority business loan. Prepare a business plan that explains the reason for your business, your objectives and your goals. Include details about how you plan to fund and operate your business, whom your customers will be and how you will market your venture. Provide details about the minorities who have ownership in your business, and every other necessary information.
3. Do your research: there are lots of websites that provide information on minority business funding. Often, such websites offer not only information about minority business loans but also guidance for qualifying for them. They may provide information about other types of funding as well. You would need them to know how to plead your cause so you ought to get all the information you need.
4. Check the banks: Some major banks are considered minority friendly, and as such they offer some sort of minority funding. You may need to check them out before you proceed further.
5. Compare and contrast: if you have come across some sources of minority funding, you need to make comparism to know those that suit you situation better. Compare minority loan programs based on the maximum amount of money you will be able to borrow, their repayment requirements and their application criteria. Some minority loan programs will consider you eligible only if your business is at least 50 or 51 percent minority owned.
6. Choose wisely: when picking, you need to choose a lender or loan program that will provide the money you need, give you the best repayment terms and the lowest interest rates. Take the time to compare and don’t automatically sign for the first loan offer you receive.
7. Gather your documents: now, you need to start bring together the documents you need to apply for a minority business loan. The lender you choose will provide you with a list of the documents you need. You typically need a copy of your business plan if you are a new business as well as personal financial documents like past tax returns. If your business is already established, you may also need a profit-and-loss statement, copies of business tax returns and cash-flow projections for a full year. Compile a list of your assets and outstanding debts as well.
8. If you can, get a cosigner: where it is possible, you are advised to get a cosigner for your loan if the lender seems reluctant to release the money without one. This would help make the loan decision go in your favour.
9. Apply in person or online: you can get to apply for a minority small business loan in person or online. Applying in person may allow you to complete the application process faster, ask questions and explain your business ideas to the loan officer. However, applying online can be convenient, and you can phone the loan officer to ask questions.
10. Look out for grants: while you may be looking out for loans to fund your small business as a minority, it is roundly advised that you look into getting grants also. Yes, grants may be quite cumbersome to get but if you are able to land one, you would have the peace of mind to run your business debt free.
Qualification Standards You Must Meet Before Applying for a Minority Small Business Loan
If you’re interested in minority business loans, there are a few that can say whether or not you would get the loan. They may include:
a. Personal Credit Line
Your personal credit score is among the first criteria to be considered when going for a loan. Lenders know that you have to pay the loan back, so they want to know if have a history of financial discipline. The higher your personal credit score, the better. The average credit score of a minority small-business owner is 707, which is 15 points lower than the average of all small-business owners in the U.S., according to a 2016 study by credit bureau Experian.
But unless you’re applying specifically for a small business loan for minorities with bad credit, a low FICO score could mean that you are not eligible for business funding.
b. Cash Flow: Lenders want to know how you handle the cash coming into your business. 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.
c. Annual Revenue: 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.
d. Time in Business
The longer your business has been around, the better. Lenders want to know you’ll be around to pay them back. You can have options as a young business, but once you hit the two-year mark, your options will open up. Minority startup business loans are definitely harder to come by, but it’s not impossible. You can check out these minority small business startup loans to start.
In conclusion, of course getting a loan can be easier said than done. In today’s economic climate, it is harder than ever for hardworking small business owners to obtain the funds they need, as loan qualifying standards have only gotten stricter.
Whether you are looking for a business loan for African-Americans, Hispanics or Latinos, or perhaps small business loans for minority women, you need to understand what it takes to qualify, and you equally have to know where you have the best chances of securing a loan.
Like mentioned above, there are federal, state, local and private loan programs tailored to address some of the loan challenges that minority small business owners often face. But no matter which loan option you decide to go for, keep the eligibility requirements in mind and keep your options open. You want to make sure you get the best minority loan for your small business. You also want to make sure that you check your eligibility so you’re only searching for realistic options for your business.