Finding a small-business loan is already hard — and it can be even harder for minority business owners. Having less wealth and fewer assets to secure loans, among other factors, can stand between minority-owned businesses and financing, according to the federal Minority Business Development Agency.
“Collateral can be a big difficulty,” says Sasha Werblin of the Greenlining Institute, a nonprofit that works to bring capital and resources into minority communities. Many were hit hard by the foreclosure crisis, and business owners who’ve had their credit tarnished by a foreclosure often have a hard time qualifying for traditional loans, she says.
The average personal credit score for a minority business owner is 707, 15 points lower than the overall average for small-business owners, according to a 2016 study by Experian. And the average business credit score for a minority small business is 49.7 — nearly five points lower than the national average, the study found.
But financing is out there. We’ve rounded up some top resources for minority entrepreneurs looking for loans:
- If you have a 600+ personal credit score
- If you have a 500+ personal credit score
- If you have unpaid customer unpaid invoices
SBA Advantage loans and other resources
Online small-business loans for minorities
Online lenders generally provide small-business loans faster than banks and other traditional sources do, and with less stringent requirements. The cost for this convenience is a higher APR. 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.
If you have a 600+ personal credit score
Minority business owners with a personal credit score of at least 600 and at least one year in business can turn to StreetShares. It’s also a good option for veterans; more than 60% 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 revenues to qualify.
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Before you apply for a StreetShares loan, find out whether you meet the lender’s minimum qualifications.
StreetShares is currently unavailable to borrowers in North Dakota or South Dakota. Do I qualify? ▾
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Before you apply for a SmartBiz loan, find out whether you meet the lender’s minimum qualifications.
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If you have a 500+ personal credit 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.
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Before you apply for a Kabbage loan, find out whether you meet the minimum qualifications.
Do I qualify? ▾
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Before you apply for an OnDeck loan, find out whether you meet the lender’s minimum qualifications.
Do I qualify? ▾
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If you have unpaid customer invoices
Business owners with unpaid invoices and bad credit can look to Fundbox. The lender doesn’t require you to have a minimum credit score and advances cash based on the value of your invoices.
Business owners that need to finance a larger amount from invoices and have stronger personal credit might prefer Dealstruck, which requires borrowers to have a credit score of at least 600.
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Before you apply for Fundbox’s invoice financing, find out whether you meet the lender’s minimum qualifications.
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Before you apply for a Dealstruck loan, find out whether you meet the lender’s minimum qualifications.
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SBA lending resources and more
SBA Community Advantage Loans: This program is for businesses — including those owned by minorities — that need $250,000 or less and are located in underserved communities. The SBA works with local, mission-based lenders to provide financing. Within the last year, 30% of the SBA’s 7(a) loans for startups and existing small businesses, which include Community Advantage Loans, went to minority business owners. Check out the SBA website for more information and a list of approved lenders.
SBA microloans: The SBA offers microloans of up to $50,000 through nonprofit organizations. Interest rates range from 8% to 13% and there’s a maximum repayment term of six years, according to the SBA. The Opportunity Fund is one partner, and 90% of its borrowers are minority businesses owners, according to the company. There’s also LiftFund — 62% of its borrowers identified as Hispanic in 2014 — and Accion, which draws 60% of its borrowers from minority communities. Here’s a list of providers by state. Contact your local SBA district office for assistance.
National African American Small-Business Loan Fund: The Valley Economic Development Center and JPMorgan Chase recently announced a new small-business loan program for African American-owned small businesses in New York City, Chicago and Los Angeles. Loan sizes will range from $35,000 to $250,000, and borrowers will receive financial consulting, as well as technical assistance with marketing and business plan development. Learn more here.
Want more options?
If you want to compare other financing alternatives, NerdWallet has come up with a list of the best small-business loans to meet your needs and goals. We gauged lender trustworthiness, market scope and user experience, among other factors, and arranged them by categories that include your revenue and how long you’ve been in business.
Steve Nicastro is a staff writer at NerdWallet, a personal finance website. Email: Steven.N@nerdwallet.com. Twitter: @StevenNicastro.
To get more information about funding options and compare them for your small business, visit NerdWallet’s small-business loans page. For free, personalized answers to questions about financing your business, visit the Small Business section of NerdWallet’s Ask an Advisor page.
This article was updated on June 10, 2016. It was originally published Oct. 29, 2015.
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