Guide to Minority Business Loan Options

Q: What can you use minority business loan funds for?

Some minority loans for business have strict requirements about what you can and can’t use them for, but generally speaking, you can use them for a range of business purposes, including working capital, purchasing inventory, hiring staff, and buying equipment.

Q: Can you get minority business loans with bad credit?

Some minority loans have less stringent credit requirements than traditional bank loans and look at other criteria, such as annual revenues, to determine eligibility.

Q: Do you need a business plan to apply for a minority business loan?

Typically, yes. Lenders (both minority-focused and conventional) often want to look at an applicant’s business plan.

Q: What can I spend a minority grant on?

Some grants may stipulate what you can spend the money on (such as a project that benefits an underserved community), while others offer more flexibility.

Q: Who qualifies for minority-owned business loans?

Typically, the business must be owned and operated by a minority with at least a 51% stake in the company. There may also be other requirements, such as credit scores, time in business, and annual revenues.

Guide to Small Business Loans for Minorities

Susan GuilloryUpdated April 1, 2022

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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.

While minority businesses have often faced barriers in accessing capital, there are now a growing number of small business loan programs designed specifically for minority entrepreneurs. Many of these funding opportunities also offer additional resources, including business training, mentors, and workshops.Minority-owned businesses are those with 50% or more ownership by a Black, Hispanic, Native-American, Asian, or another racial or ethnic group. In many cases, women-owned small businesses also qualify. Read on to learn about minority and Hispanic business loans, grants, and other resources that may help open doors for your small business.

What Are Minority Small Business Loans?

Any business owner, regardless of ethnic or racial background, can apply for a small business loan. However, there are also small business loans designed to provide more access to this financing in underserved markets. These loans often offer competitive rates, yet have more flexible qualification requirements than traditional business loans. These lenders are looking to support businesses like yours and give them an even playing field among other small businesses.

Who Qualifies for Minority Small Business Loans?

Specific qualifications for individual loans will vary from one lender to another, but the biggest criteria is that a majority (at least 51%) of the business must be owned and run on a daily basis by a minority.The Small Business Administration (SBA) recognizes these groups as minorities:

African Americans
Asian Americans
Hispanic Americans
Native Americans

For many loans, women are also considered minorities.Recommended: Success Secrets of Hispanic & Latine Owned Businesses

Finding Minority Business Funding Options

As you’ll see below, there are many options when it comes to minority business loans. Often, the biggest challenge is knowing which to apply for.Before applying for a business loan, you’ll want to look closely at the qualifications, including what type of business owner the loan is targeted to, time in business, annual revenue, credit scores, and if there are any restrictions on how the funds need to be used. Once you find loan options that may be a good fit for your business, you may want to find out if it’s possible to prequalify. This means finding out whether you would be approved for financing and at what interest rate without the lender doing a hard credit check. This allows you to compare small business loans and offers without impacting your credit. Recommended: The Best Metros for Minority-Owned Businesses in the U.S.

Minority Business Loan Options

Below are some minority loan options for both startups and established businesses.

Minority SBA Loans

The U.S. Small Business Administration (SBA) offers several loan programs, some of which are designed specifically for underserved communities.

8(a) Business Development Program

While it’s not a loan program, the SBA’s 8(a) Business Development program aims to help small disadvantaged businesses (many of which are owned by minorities) by awarding at least 5% of all federal contracting dollars to these businesses. Disadvantaged business owners who participate in the SBA’s 8(a) Business Development program also have a better chance of qualifying for SBA loans.To qualify for the 8(a) program, your business must be at least 51% owned and controlled by U.S. citizens who are economically and socially disadvantaged, and have been in operation for two years or more. In addition to securing federal contracts, approved businesses can also get business assistance, mentorships, and free training.

Community Advantage Loans

The SBA’s Community Advantage Loan program is specifically designed to meet the needs of business owners in underserved communities. To qualify for an SBA community advantage loan, which provides up to $250,000 in capital, business owners need to have good credit and a strong business plan. However, the business’s balance sheet and amount of collateral will not affect eligibility. To find a Community Advantage Loan in your area, you can ask your current financial institution for a list of local lenders that participate in the program or consult this SBA chart.

Microloans

If you are looking for a smaller loan to either start or expand a business, you may want to check out the SBA’s microloan program. The program is administered by an intermediary network of nonprofit community-based lenders, rather than traditional banks. Through these lenders, the SBA aims to reach lower-income communities and minority-owned businesses that are often overlooked by traditional lenders. These loans come with low interest rates, six-year terms, and up to $50,000 in capital.(Note: The lenders listed below were chosen based on our analysis of search volume.)

Accion

Accion’s mission is to “build a financially inclusive world with access to economic opportunity for all.” The organization does this through free events, training, and workshops, as well as by offering minority business loans.Its Accion Opportunity Fund provides working capital for minority businesses of $5,000 to $100,000, and is quick and easy to apply for online. To qualify, your business must have been open for at least 12 months, and you must have at least $50,000 in annual revenues.Accion also offers online resources, events, and networking opportunities (in Spanish and English) to help minority business owners learn and scale their companies.

Union Bank's Business Diversity Lending Program

Union Bank is a nationwide bank with an eye on supporting diversity and minority businesses. Its Diversity Lending Program supports woman-, minority-, and veteran-owned businesses by lending them up to $2.5 million.To qualify, a business must have been in operation for at least two years and be at least 51% owned, operated, controlled, and actively managed by a minority, woman, or veteran who is a U.S. citizen. Annual sales cannot exceed $20 million.

The National Minority Supplier Development Council Business Consortium Fund

The National Minority Supplier Development Council (NMSDC) is a nonprofit that offers minority-owned businesses access to financing through various programs. Through the NMSDC’s direct lending program, minority business owners can apply for a 5-year term loan or a business line of credit for $250,000 to $750,000. To qualify, you need to certify your business as an NMSDC minority business, have been in operations for at least three years, and have an adjusted cash flow-to-debt service ratio of at least 1.25 times.

Indian Loan Guarantee Program

Run by the U.S. Department of the Interior, the Indian Loan Guarantee and Insurance Program (ILGP) is designed to help American Indian and Alaska Native businesses overcome barriers to conventional financing at reasonable rates.To qualify, you must be an individual who is an enrolled member of a federally recognized American Indian and Alaska Native tribe or group and own at least 51% of your business. You must also have at least 20% equity in the project you want financed, and that project must benefit the economy of a reservation or tribal service area.

State and Local Loans for Minorities

Loans targeted to minority business owners are often offered at the state and local levels. In many cases, these loans focus on specific industries or for specific uses. It’s worthwhile to research your state’s minority-focused loan programs, grants, and resources.

CDFI Loans

The Community Development Financial Institutions Fund (CDFI Fund), which is part of the U.S. Treasury, gives funds to companies and organizations throughout the U.S. that help underserved people and communities. Minority business owners can reach out to local banks and nonprofit groups that have received CDFI funds to discuss and apply for low-cost business loans.

Office of Hawaiian Affairs Malama Loan

If you are a business owner of Native Hawaiian ancestry, you may be eligible for an OHA Mālama Business Loan. Approved applicants can borrow $2,500 to $100,000 with repayment terms of up to seven years. You must be a resident of Hawaii, be registered with the OHA Hawaiian Registry, have a credit score of 600 or higher, and a debt-to-income ratio of 45% or less.Recommended: Black-Owned Banks in the US

Minority Business Loan Options vs Conventional Small Business Loans

There are a wide variety of business loans available to minority businesses, including loans specifically targeted to underserved communities and conventional loans that are available to all small businesses. Which type of financing is best for your business? There are pros and cons to each. Here’s how they compare.

Minority Business Loans	Conventional Business Loans
May be easier to qualify for	May have strict qualification requirements
Fewer loan options available	More loan options available
May come with other benefits like training, workshops, and events	Typically, no extra services available
May have restrictions on how the loan can be used	Can typically be used for a wide variety of business purposes

Recommended: Banks on Wheels: Helping Underserved Communities

Grants for Minority Business Owners

A minority business loan isn’t your only option for funding. It may also be possible for your business to qualify for a small business grant. The chief benefit to business grants vs loans is that grants, unlike loans, don’t have to be repaid. Make sure to explore both minority business loans and grants to find the best source of capital for your business.

Grants.gov

Grants.gov is the largest database of federal grant opportunities. While most grants are not specifically targeted to minority small business owners, awards are available for all types of entrepreneurs, especially those focused on healthcare, U.S. defense, and environmental protection.

USDA Rural Development Grants (RBDG)

The USDA’s Rural Development Grant is available to businesses in rural communities that have fewer than 50 employees and less than $1 million in gross revenue. This type of small business grant varies in size and can be used for a wide range of projects that aid business development in rural areas, including training, technical assistance, acquisition or development of land, building construction or renovations, equipment purchases, and pollution control.

FedEx Small Business Grant Contest

FedEx has been holding its Small Business Grant Contest for over a decade. Though not specifically targeted to minority businesses, any qualified small business can enter the contest for a chance at winning grant money. Each year, FedEx provides three $50,000 grants and seven $20,000 grants, as well as FedEx print services credit and other business-related services and products.To enter, you need to record a two-minute elevator video pitch explaining why your business is unique, as well as create a FedEx account and company profile.

Small Business Resources for Minorities

Here is a look at other resources available for minority business owners.

MBDA

The Minority Business Development Agency advocates for minority-owned businesses, and offers workshops, events, research, and conferences to help underserved entrepreneurs. Its Enterprising Women of Color Initiative is aimed to help minority women succeed in business.

U.S. Minority Chamber of Commerce

The U.S. Minority Chamber of Commerce (UMCC) has locations in most cities and actively promotes the economic growth, development, and interests of minority-owned businesses. Members have access to events, training, and other business resources to support them in their growth.

Explore Lantern's Small Business Funding Options for Minorities

Whether you’re looking to start a minority business or expand an existing one, you’ll likely need access to capital to turn your vision into a reality. If you're just starting to explore business loan options, Lantern by SoFi can help simplify the process. With our easy online lending tool, you can immediately get offers from multiple small business lenders with just application and without making any type of commitment.

Frequently Asked Questions

What can you use minority business loan funds for?

Can you get minority business loans with bad credit?

Do you need a business plan to apply for a minority business loan?

What can I spend a minority grant on?

Who qualifies for minority-owned business loans?

Photo credit: iStock/NickyLloyd

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About the Author

Susan Guillory

Su Guillory is a freelance business writer and expat coach. She’s written several business books and has been published on sites including Forbes, AllBusiness, and SoFi. She writes about business and personal credit, financial strategies, loans, and credit cards.

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