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Finance & Accounting, Minority Businesses, Small Business Loans

Funding for Minority Businesses: Minority Business Grants and Loans


Are you a minority who is starting or growing a business? If so, you’re definitely in good company, and there are many minority business loan options and loan alternatives available when you need funds. State and local agencies, as well as private organizations assist minority owned enterprises in a variety of ways including with minority business loans. There are also Small Business Association (SBA) backed loans that are available to all business owners including minorities. In fact, a recent study has shown that SBA-backed loans are three to five times more likely to be made to minority businesses than those made by banks.

There has definitely been an increased focus on providing loans to minorities and for good reason. The number of minority-owned businesses jumped nearly 50% from 2002 to 2007 – more than double the 17.9 percent increase for US businesses as a whole. Revenues of minority-owned businesses increased 55 percent to $1.0 trillion over the same five year period. This is compared to a 33 percent increase for all businesses nationwide. The three states with the largest number of minority-owned firms are California, Texas, and Florida. In Los Angeles County alone, nearly 45% of all businesses are minority-owned.

With more minorities than ever launching businesses, the need for minority loan options is increasing. And, lenders are seeing this as an opportunity to reach out to them with a variety of new lending opportunities.

Funding for Minority Businesses: Some Options

The Minority Business Development Agency (MBDA)

A great place to start when investigating minority business loans is the Minority Business Development Agency which is part of the US Department of Commerce. This government agency offers technical assistance and access to capital, contract opportunities, and new markets with the purpose of fueling job growth.

On the MBDA website, there is information about a variety of financing options for minorities including how to apply for a minority business loan, availability of grants, and private equity and venture capital sourcing. The agency offers one-on-one financial counseling for minority business owners and can even help with getting documentation together for a loan application.

The Small Business Administration (SBA)

While the SBA does not offer specific any specific minority business loan program, it is one of the largest loan guarantors in the United States. This gives businesses the opportunity to apply to certified commercial lenders for loans backed by the government. The SBA does not offer any preferential status for any group, and as such doesn’t provide funding specific to a demographic. But, many certified lenders do have special programs to award loans to minority businesses.

An Overview of SBA Loan Programs

General Small Business Loans

For general small business loans, the SBA has the 7(a) Loan Program which provides loans to businesses to assist in the acquisition, operation, or expansion of an existing business. These loans have a maximum amount of $5 million. The average 7(a) loan in 2012 was $337,730.


The SBA’s Microloan program loans up to $50,000 to help small businesses and some not-for-profit childcare centers expand or start up. The average amount of this type of loan is $13,000. The SBA works with designated intermediary lenders which are nonprofit community-based organizations with experience in lending, management, and technical assistance. These lenders each have their own lending and credit requirements, and some offer special programs for minority business owners.

Microloans can be used for working capital, inventory, supplies, furniture, fixtures, machinery, or equipment. However, SBA microloan proceeds cannot be used to pay off existing debt or to purchase real estate. The payment term for an SBA microloan is six years, and the interest rate typically ranges from eight to 13 percent.

To apply for a microloan, you will need to work through one of the affiliated nonprofit, community-based organizations, and typically business training is one of the requirements of obtaining this type of funding.

The SBA 8(a) Business Development Program

While not a loan program, the 8(a) program helps qualifying minority-owned businesses growth through one-to-one counseling, training workshops, and management and technical guidance. The 8(a) program also gives minority businesses access to government contracting opportunities to enable them to compete in the federal marketplace.

Minority groups are presumed by the SBA to be socially and economically disadvantaged and can qualify for the 8(a) program. These groups include African Americans, Hispanic Americans, Native Americans, Asian Pacific Americans, and Subcontinent Asian Americans. Business owners who are not members for one or more of these groups can be considered for the 8(a) program if they can provide substantial evidence and documentation that shows they have been subjected to bias or discrimination and are economically disadvantaged.

Minority business owners who are interested in the 8(a) program should contact their local SBA district office.

State and Local Funding for Minority Business Loans

It’s definitely a good idea to investigate state and local sources of funding when looking for a minority business loan. There are a variety of regionally-focused redevelopment agencies and other organizations that can help.

Operation Hope is one such organization that is helping people in low-wealth communities who want to grow businesses. Their Small Business Empowerment Program provides business training, as well as assistance with loan packaging, access to direct lenders, SBA loan program financing, and lines of credit.

Many states offer specific minority business loan programs. For example, the State of Ohio offers a Minority Direct Loan Program which provides fixed, low-interest rate loans to certified minority-owned businesses that are purchasing or improving fixed assets or creating or retaining jobs. Eligibility for the program is determined by a number of factors including the number of jobs created or retained as a result of the State’s investment, the extent of participation by the business and a lender in the project, and demonstrated need for the funds. The minimum amount for this loan program is $45,000 with a maximum amount being $450,000.

Private Lenders for Minority Business Owners

Both community and national lending institutions offer minority business loans. These loans typically have competitive interest rates, more flexible underwriting, and generally less restrictive lending options. Banks generally use the minority definitions set forth by the Equal Employment Opportunity Commission. And, a minority must own and manage at least 51 percent of the business.

Most commercial banks with active small business portfolios or SBA lending programs have programs for minorities. For example, Wells Fargo had recently set a goal of lending $5 billion to Asian American businesses owners as part of its Asian Business Services division. KeyBank runs a minority and women’s business enterprise program, and Bank of America and UPS Capital have both committed to helping minorities with lending programs.

Other Forms of Funding for Minorities

Minority business loans are definitely an option for minorities looking for working capital to fund their businesses. But, there are other options for acquiring cash including peer-to-peer microlending sites and non-traditional lenders of working capital like Kabbage. Kabbage offers fast, flexible funding for purchasing inventory, hiring help, or buying equipment, and advances are available quickly – typically in less than seven minutes.

Of course, many minorities obtain loans through friends and family, and even angel investors who are willing to invest in a portion of a business in the infancy stage with the hope that they will be able to make a profit as the business grows.

What about Minority Business Grants?

Another source of funding for small businesses is grants. These are typically more difficult to get, but there are programs just for minority business owners. It pays to do a little internet sleuthing and to check community organization websites to see what is available.

The Obama administration has also launched a grant program called the Small Business Innovation Research (SBIR) Small Business Technology Transfer Program (STTR) grant that is focused on providing money to businesses focused on early stage research and development. This program has reached out to socially and economically disadvantaged firms, and the participation rate of minority and women owned firms in the program is roughly 21 percent.

Additional Resources for Minority Business Owners

There are many resources including business membership alliances, networking groups, and specific industry organizations that provide specific assistance for minorities business owners.

The National Minority Supplier Development Council is one such organization that was created to provide increased procurement and business opportunities for minority businesses of all sizes. The Council advances business opportunities to Black, Hispanic, Asian, and Native American businesses and connects them with corporate members. They have regional councils across the country and over 3,500 corporate members that include most of the largest top publicly-owned, privately-owned, and foreign-owned companies, as well as hospitals, universities, other buying institutions. The Council has matched more than 16,000 minority-owned businesses with member corporations which want to purchase their products and services.

The US Hispanic Chamber of Commerce, the US Pan Asian American Chamber of Commerce, and the National Black Chamber of Commerce all offer advice to minority small business owners. And, professional organizations such as the Alliance of Business Leaders and Entrepreneurs in Chicago help connect black entrepreneurs with decision makers at corporations.

Tips for Getting a Minority Business Loan

Whether you’ve struggled to get financing or are just thinking about getting a loan for the first time, there are some strategies that will help improve your chances of getting the funding you need.

Find the Right Lender

Your local SBA district office will be able to provide you with information on community and national banks. They also have a wealth of information on loan eligibility and application requirements.

Learn How to Prepare a Loan Proposal

When applying for a minority business loan, you should expect to prepare a loan proposal. This document includes personal and business financials that document your net worth, sales projects and general information about your business. Be prepared to provide financial statements, certifications & licenses, loan application history, income tax returns, resumes, business history, leasing information, and personal background statements.

The SBA offers free online courses on how to complete a loan proposal and other application requirements, as well as loan application checklists to help guide you through the process.

Be Persistent

Many business owners whether they are minorities or not, are turned down for business loans. Don’t get discouraged. If you do get turned down, don’t let this be a deterrent. However, make sure you find out the specifics on why your application was denied. This can help you as you move forward with future applications.

Deciding on a Minority Business Loan

Once you’ve decided that you’re ready to apply for a minority business loan or other type of financing for your business, it’s smart to determine exactly how much you’ll be needing and how you will allocate the funds. To preserve your credit and improve your chances to successfully grow your business, it makes good sense to borrow only as much as you need and to have a very clear strategy for how you will pay back what you have borrowed.

As well, you will want to completely understand the terms of the loan. This includes amortization (the monthly payments of principal and interest), whether or not there is a balloon payment or prepayment penalty, and any collateral that will be required to secure the loan. Being a savvy lender who knows the options and understands the terms is the best way to successfully borrow money.


As a minority business owner, you have a tremendous amount of lending options and resources to help you on your path to entrepreneurial success. Whether you choose a government program, a commercial bank, or other private lending sources, you can obtain the funds you need to achieve your goals. The first step is to ask for help and acquire information from a variety of sources to find out what is right for you and your business. With the facts in hand, you’ll be able to get the right loan and leverage the funds to the best of your ability.

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Kabbage Team

Kabbage is here not only to provide access to the small business funding you need, but to also help you grow your business through free marketing tips, webinars, tools and more. Is there something you'd like us to cover or want to get your small business featured on our blog? Send us a note at