Cash is the lifeblood of any business and business loans can help it get the capital it needs to sustain and grow. However, for many minority businesses getting approved for a business loan can be challenging. Many banks and lending institutions are notorious for discriminating against minority businesses and they have a long history of denying more minority businesses especially black and brown businesses than white businesses.
But banks are not all to blame here, many minority businesses lack business compliance, strong credit, and financial statements to even qualify for a business loan. Still, banks do discriminate against minority businesses who have the credit and financials and still deny them were white-owned companies more likely to get approved.
A recent Federal Reserve shows the 80.2% of white business owners get approved for funding whereas 66.4% of businesses owned by people of color get funding and they on average $30,000 less than white business owners.
Taking steps to make sure that your business is in compliance, that the credit is good and that the business can show good cash flow is key to increasing the chances of getting business funding. In short, when applying for a business loan does not give the bank a reason to say no.
There are many financing options available to minority businesses. Choosing the best funding will depend on how your business generates revenue and what industry your business operates in.
Types Of Business Loans Business Loan
A business loan is basically an installment loan with a set term and interest rate. Once it is paid off you have no more access to that money. Business loans usually require good credit and good cash flow to support the loan. To qualify, your business should have a good credit score of 680 or above, strong cash flow must be established for at least 2 years and the business must be in compliance.
Of course, they are other loan products that cater to business owners with poor credit or are in business for less than 2 years. Beware though, these loans are not recommended because come with ultra-high interest rates, very bad terms, and can and drain cash flow. It is always best to get the credit optimized first before applying for any business loan in order to get the best rate and terms.
Business Line Of Credit
A business line of credit is like a credit card in that once you pay the remaining balance you can use it repeatedly. This can be a good option for any business to get access to capital when it is needed. Loan amounts can range from $25K-$150K or more.
The easiest way to get a business line of credit is through a bank where a business bank account is set up. Having a good bank relationship will go a long way in getting access to funding especially as a minority business owner and having a business bank account in good standing is a great way to start. If you do not have a business bank account it is strongly recommended that do so ASAP.
An SBA loan is a loan that is guaranteed by the SBA which protects the approved SBA lenders from default. These types of loans are attractive because they offer low rates and good terms. They are several loan programs available to suit your funding needs. Minority businesses should apply through a certified SBA lender to get funded. In order to apply, several documents are required. You can learn more by going to SBA.Gov.
Standard 7(a) Small Loan allows businesses to borrow up to $5M. They will only guarantee up 85% of the loan amount up to $150K and 75% over $150K. This loan can be a revolving line for up to 10 years. The SBA has really reduced the underwriting down to 5-10 business days. Lenders are not required to take collateral for loans $25K and below. For a loan above $350K collateral is required to cover the full loan amount.
This loan can be used for:
- Short and long-term working capital
- Refinance current business debt
- Purchase furniture, fixtures, and supplies
It is also considered to be the best option for buying a business that has real estate included in the purchase.
The SBA Express allows businesses to borrow up to $350K. They will only guarantee up 85% of the loan amount up to $150K and 75% over $150K. This loan can be a revolving line for up to 10 years. The SBA has really reduced the underwriting down to 36 hours. The only difference between the SBA Express and the 7(a) Small Loan is the underwriting time where the latter takes 5-10 business days.
The loan allows for exporter businesses access to lines of credit for up to $500K. The SBA will guarantee up to 90% of the loan amount for loans less than $350K and 75% for loans above $350k. Interests rates can be negotiated and revolving lines can not exceed 7 years.
Export Working Capital
SBA provides export business working capital to support sales up to $5M. This program guarantees 90% of the loan amount. Underwriting takes up to 5-10 days. The resolving line can be up to 12 months or less.
This loan program offers reduced fees for veterans who own 51% or more of their business.
It is available to all honorably discharged veterans, Service-Disabled Veterans, Active Duty Service Member’s participating in the military’s Transition, Reservists and Nation Guard Members, and Spouse or widow of any active duty or reservists.
Learn More Here.
A factoring loan, commonly known as accounts receivables is a loan that uses unpaid customer invoices as collateral to fund. If the borrower fails to pay back the loan the lender can take ownership of those invoices. The benefit of this type of business loan is that the can fund in 2 to 4 days and requires less documentation. Credit is usually not a factor. However, they do come with high interest rates and payment amounts.
Merchant Cash Advance
A merchant cash advance is not a loan but rather a cash advance based on the merchant’s credit card sales. Because of this lending guidelines are more relaxed. Payouts typically are required daily and fees can be steep.
If you need some assistance with getting a business loan, we may be able to help. Please feel free to complete our online form and we will get in touch with you to discuss your business funding options.
Crowdfunding is one option the allows for many new businesses and not-so-new businesses to access funding without the typical qualifications that bank and lending institutions require. Instead, you get money from the get from the general public. Many businesses have successfully raised the capital they needed this way.
As a minority business owner, crowdfunding could be a much better way to get the funding needed to start, grow or sustain the business.
That is why we launched MinorityBzCap.com, a donation-based crowdfunding portal made exclusively for minority businesses. We feel that this is a game-changer in that minority business owners can get access to capital without credit nor applying for a loan. Instead, your business gets support from people who believe in your business. It is a great way to help minorities to support each other. Why not start your campaign right now.