Securing Minority Owned Business Loans

Minority Businesses are a Fast Growing Business Segment

Minority-owned businesses are the backbone of our nation. According to the Annual Business Survey 21% of businesses are minority-owned. Over the last decade, minority-owned businesses account for more than half of the new businesses started in the U.S. Minority-owned businesses continue to grow in the U.S., yet it’s common for their financing needs to remain unmet. Traditional loans have a 15% approval rate, making it difficult for minority entrepreneurs to access the financing they need for their business.

Minority-owned businesses face unique challenges and need an accessible financing solution that caters to their needs.

Sources for Minority Owned Business Loans

When you decide that you’re ready to expand your services, or need additional funds to support your business, a business loan can help you meet your goals. There are three main sources for minority-owned business loans. You can determine which lender is best for your organization by seeing how their factors can affect your finances and workflow.

Bank Loans

Banks offer minority owned business loans to leaders seeking substantial funding. Some of the major benefits of working with a large bank include:

• Most banks offer personalized consulting services.
• Banks offer sizable loans.

Although you may view the perks of a large bank loan to be favorable, you may also find that seeking out minority owned business loans from a bank can be challenging. Some of the major consequences of working with a bank include the following:

• Banks have lengthy application processes.
• Banks have high rejection rates.
• Banks have long repayment schedules.

Although banks can be a helpful way to get access to minority owned business loans, they aren’t ideal for all types of business owners. If you lack collateral, you will likely be rejected for a bank loan. Banks are also not the right choice for business owners who need fast access to cash, as it can take them weeks to approve you for a loan. For that reason, small business owners are typically not the best fit for minority business loans from banks.

Small Business Administration Loans

If you don’t think you will be approved for a traditional minority owned business loan, you might turn to the SBA for funding. In addition to the general SBA 7(a) loan, the SBA’s 8(a) loan program is targeted toward small businesses owned by socially and/or economically disadvantaged people. This program sets aside federal funding specifically for minorities. To apply for an SBA 8(a) loan, you have to get certified as an 8(a) business – a lengthy, involved process.

In addition, both SBA financing options still need to be sourced from a lender, usually a traditional bank. This means the same loan decision challenges may apply. Banks that offer SBA loans have strict approval requirements, including a minimum credit score of 640, according to SBA7a.Loans. In addition, these loans typically have longer terms of 5 to 25 years. When added up, the factors associated with SBA loans may not be worth the hassle for all business owners.

Still, here are some ways you can benefit from SBA loans:

• The SBA has dedicated funds for minority and disadvantaged business owners.
• The SBA offers large loan amounts.
• SBA loans offer special terms and interest rates.
• SBA loans have somewhat higher approval rates than traditional bank loans.

Securing minority business loans isn’t a flawless process. Some of the major drawbacks of SBA loans are:

• SBA loans have strict qualifications for who can apply.
• The SBA has a long approval process.
• SBA loans have restrictions on how you can use the funds.

SBA funding can be a better option for small business loans than traditional bank loans. However, their lack of flexibility can prevent you from reaching your business’ full potential.

Minority Owned Business Loans from Alternative Lenders

When you work with large-scale banks or the SBA, you can anticipate a long approval process and strict regulations. That’s why an alternative lender might be a better choice for quickly securing funds for your business. Online, alternative lenders understand that nobody knows what is best for your business quite like you do. Once you’ve received financing, you can use the money however you see fit.

• Alternative lenders have different requirements for approval. Banks and the SBA will typically not approve loans for businesses that have been running for one year or less. In addition, their credit expectations can negatively impact business owners who have dealt with debt in the past. If your loan application has been rejected by banks or the SBA, you may still be able to secure funding from an alternative lending resource. These lenders look at different information to help get you approved.
• Alternative lenders have fast approval processes. Alternative lenders have quick, simple online applications that don’t require as much clunky paperwork. Once received, they can process your application and provide you with business loans in as little as 24 hours.

Small business owners who need fast access to working capital may opt to apply for loans from an alternative lender rather than from a bank or the SBA. Though it can be a good choice, be wary that not all alternative lenders offer the same benefits. Some online lenders have the following shortcomings:

• Alternative loans can be limited in scale. A lot of online lending services have caps on the amount of funding you can receive at one time. This isn’t the best option for those looking to make large-scale investments in their company.

• Some alternative loan processes aren’t tailored to your unique business need. Some online lenders offer a one-size-fits-all product and an overly automated process that lacks personal service. If you want guidance and more of a partnership throughout your lending experience, you should consider a more personalized alternative lender.