The Top 9 Loans for Minority-Owned Small Businesses

Banking

What is a "minority-owned" business?

The exact definition of "minority-owned" may vary from program to program.

However, some federal agencies, corporations, and lenders prioritize businesses that qualify for specific certifications.

Minority Business Enterprises Certification

One of these certifications is the Minority Business Enterprise (MBE) Certification from the National Minority Supplier Development Council (NMSDC).

Here's how to qualify as an MBE:

You must be a U.S. citizen.
Your business or startup must be at least 51% owned, managed, or controlled by a member of a minority group. For this program, members of a minority group must be at least 25% Asian-Indian, Asian-Pacific, Black, Hispanic, or Native American.
The business must be a for-profit enterprise and physically located in the U.S. or its trust territories.
The minority owners must handle management of the business's daily operations.

8(a) Business Development Certification

Another certification available to minority business owners is the 8(a) Business Development program from the U.S. Small Business Administration (SBA).

This program provides training to help companies owned and controlled by economically disadvantaged individuals, including some minorities, learn how to apply for and win federal contracts.

To qualify for 8(a) certification, your business must meet the following criteria:

Be a small business (The SBA generally considers any company with up to 1,500 hundred employees and up to $41.5 million in gross receipts to be a small business)
Not have previously participated in the 8(a) Business Development program
Be at least 51% owned and controlled by U.S. citizens who are socially and economically disadvantaged
Have a personal net worth of $750,000 or less, adjusted gross income of $350,000 or less, and assets totaling $6 million or less
Demonstrate good character
Demonstrate the potential for success, such as having been in business for two years

Some states and cities have their own minority-owned business certifications, so search online or reach out to your local Small Business Development Center to discover programs in your area.

Note: Wondering what the government means when they say "socially and economically disadvantaged"? According to Title 13 Part 124 of the Code of Federal Regulations, socially disadvantaged individuals are "those 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. The social disadvantage must stem from circumstances beyond their control."

Economically disadvantaged individuals are "socially disadvantaged individuals whose ability to compete in the free enterprise system has been impaired due to diminished capital and credit opportunities as compared to others in the same or similar line of business who are not socially disadvantaged."

Loan programs geared toward minority business owners

Now, let's look at some financing options explicitly geared toward minority-owned businesses.

1. SBA Community Advantage loans

The SBA's Community Advantage (CA) loan program provides loans up to $250,000 to help small businesses in underserved markets. The SBA guarantees up to 85% of the loan amount, making it possible for lenders to approve loans for borrowers who might not qualify otherwise.

The SBA also caps the interest rate the lender can charge at the prime rate plus 6%.

You can download a list of lenders that offer Community Advantage loans from the U.S. SBA.

2. Union Bank's Diversity Lending program

Union Bank's Diversity Lending program provides loans up to $2.5 million for woman-, minority-and veteran-owned businesses.

To qualify for the program, you must:

Have been in business for at least two years
Be at least 51% owned, operated, controlled, and actively managed by a woman, minority, or veteran who is a U.S. citizen
Have annual sales of $20 million or less
Have a business located in California, Oregon, or Washington

3. NMSDC Business Consortium Fund

The NMSDC Business Consortium Fund offers microloans for certified Minority Business Enterprises. Loans are available in amounts from $10,000 to $100,000 and can be used to provide working capital, purchase inventory or equipment, or finance technology upgrades.

To qualify, you must:

Have been in business for at least three years
Be certified as an MBE by the NMSDC
Have no bankruptcies on your credit report
Have no tax liens or judgments for at least three years

4. Indian Loan Guarantee Fund

The Indian Loan Guarantee and Insurance Program (ILGP) helps American Indian and Alaska Native communities access favorable interest rates on business loans by guaranteeing up to 90% of the loan amount for participating lenders. The loans can be used for a variety of business needs, including operating capital, purchasing equipment, or constructing real estate.

To qualify for a loan through the program, you must be one of the following:

An enrolled member of a federally recognized American Indian and Alaska Native (AI/AN) tribe or group
A federally recognized AI/AN group
A corporation, limited liability company, or other business entity owned at least 51% by federally recognized AI/AN individuals

To get started, find a Division of Capital Investment (DCI) regional zone office in your area and call or email the office to learn more about available lenders and loan programs.

5. Accion Opportunity Fund

The Accion Opportunity Fund (AOF) offers loan amounts ranging from $5,000 to $100,000 with interest rates ranging from 5.99% to 14.99%. In addition to loans, they also provide educational resources, mentoring and coaching, and access to support networks for minority small business owners.

While the AOF doesn't list specific loan requirements on its website, it serves a client base that is nearly 90% women, people of color, or immigrants. They also make loans to borrowers with Individual Taxpayer Identification Numbers (ITINs) and borrowers who've had past credit problems.

6. Accompany Capital Microloans

Accompany Capital provides loans ranging from $500 to $50,000 for immigrant and refugee entrepreneurs in New York City. The loans offer 3% fixed interest rates and repayment terms up to three years.

To qualify, you must:

Be at least 21 years old
Have a business located within the five boroughs of New York City
Have positive cash flow from operations
Not have declared bankruptcy within the past 24 months
Have all required business licenses

7. TruFund Financial Services

TruFund Financial Services's mission is to "help historically disadvantaged individuals and communities create thriving and resilient small businesses and entrepreneurial ecosystems in order to close racial and economic disparities and ensure an inclusive and equitable society."

TruFund Small Business Loans range from $50,000 to $750,000 with interest rates ranging from 8% to 10%.

To qualify, you need:

A FICO score of 600 or greater
A minimum debt coverage ratio of 1.10x
Revenue of at least $200,000 in the prior year
To have been in business for at least one year (three years for nonprofit organizations)
Meet one of the following criteria:
Operate in a low- to moderate-income area
Majority owned by a woman, minority, or member of another disadvantaged group
Employe low- to moderate-income workers

All 20% or more owners of the business must also personally guarantee the loan.

8. Kiva

Kiva is a crowdfunding platform that provides 0% interest loans for small business owners. You can borrow up to $15,000.

To qualify for Kiva's funding options, you must:

Be based in the U.S.
Be over 18 years old
Use the loan for business purposes
Not currently be in foreclosure, bankruptcy, or under and liens
Demonstrate social capital by having a small number of friends and family lend to them during a Private Fundraising Period before the loan is posted publicly

Businesses that are engaged in multi-level marketing or direct sales, illegal activities, and pure financial investing don't qualify.

9. Community Development Financial Institutions

The Community Development Financial Institutions (CDFI) Fund is a department within the U.S. Treasury that awards federal dollars to banks, credit unions, loan funds, and other financial institutions. In turn, these CDFIs provide loans to minorities and other economically disadvantaged communities to help start or grow businesses, provide economic opportunities, and revitalize neighborhoods.

The loan types and eligibility requirements vary, but you can find a CDFI in your state using the CDFI locator tool. From there, you can visit the websites of CDFIs to check out the loan products they offer and the communities they serve.

Additional tips for applying for a business loan

Every lender has its own eligibility requirements and application process. However, many lenders look for the same essential documentation.

The following list, adapted from the Minority Business Development Agency's Loan Documentation List, can help you prepare to apply for minority business loans as well as loans available to any small business.

Loan application. Loan application forms vary by lender, but they typically ask for the same information. You'll likely need to provide your name, address, Social Security number, or ITIN. You should also be prepared to answer questions about how much you want to borrow and how you plan to use the loan proceeds.
Resume. Lenders may consider your educational and professional background as part of the loan underwriting process.
Business plan. Your business plan should cover how your business makes money, current financial information, and financial projections.
Personal and business credit. Lenders will look at your personal and business credit report and credit score as part of the loan underwriting process. It's a good idea to review your credit reports before applying for a loan so you can clear up any issues or errors that may drag your score down and make it challenging to get approved.
Tax returns. Many lenders require personal and business tax returns for the past three years.
Financial statements. Lenders may want to review your company's balance sheet, income statement, and statement of cash flows.
Bank statements. Many lenders require borrowers to submit one year of business and personal bank statements as part of the loan package.
Collateral. Every minority business loan program doesn't require collateral, but some do. If you have bad credit, weak cash flow, or other situations that make getting approved for a loan challenging, putting up your personal or business property as collateral may help you secure a loan.
Legal and organizational documents. Lenders may also require copies of your business licenses, articles of incorporation, contracts, franchise agreements, and leases.

Gathering all of this information before applying for a loan makes the process of applying much easier.

While you're applying for loans, don't overlook another possible source of business funding: grants. Small business grants may be tougher to win, but they're usually preferable to loans because you don't have to pay them back.

Check out our list of Business Grants and Resources for Minority-Owned Businesses, Small Business Grants for Women, and search for small business grants at grants.gov.

How Accracy can help

No matter where you apply for a small business loan, chances are your lender will ask for financial information, including a balance sheet, income statement, and statement of cash flows. And having financial statements at the ready requires accurate and timely bookkeeping.

Bench is an online bookkeeping service powered by real humans. Your Bench bookkeeping team automates the accounting process by connecting bank accounts, credit cards, and payment processors to import financial transactions into our platform and prepare financial statements every month.

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