Grants and loans for minority-owned businesses: a complete guide

More than 11 million minority-owned businesses in the United States generate more than $1.8 trillion in revenue annually. Still, access to loans for minority-owned businesses can be hard to come by. Loan programs are more important than ever for businesses seeking financing options to keep their doors open due to COVID-19. Luckily, there are several funding options specifically designed for minority small business owners looking to stay afloat, or even expand. Let’s take a look at loans for minority-owned businesses offered by the Small Business Association, as well as a few small business grants (free money) from other financial institutions. ‍

{{banner-cta}}

First, what are loans for minority-owned businesses?

Small business loans for minorities are programs designed to make it easier for minority business owners to gain capital. These can come from institutions like the SBA, the federal Department of Commerce, non-profit organizations, or microlenders.

Who qualifies?

Typically, organizations require that small business owners be part of a specific minority group. They also tend to require that they own at least 51% of the business. Some programs require that all members of the business be a minority, but this isn’t common. Different lenders and loans come with different requirements, so be sure to check the details when applying.

SBA loans for minority-owned businesses

There are several types of SBA loan programs aimed at helping underserved communities gain access to capital.

SBA 8(a) Business Development Program

While not technically a program that offers loan amounts, minority or disadvantaged businesses who participate in the SBA Business Development Program will be more likely to qualify for SBA loans afterwards. According to the SBA’s 8(a) Business Development Program page, businesses in the program can:

• Compete for set-aside and sole-source contracts in the program
• Get a Business Opportunity Specialist to help navigate federal contracting
• Form joint ventures with established businesses through the SBA's mentor-protégé  program
• Receive management and technical assistance, including business training, counseling, marketing assistance, and high-level executive development

8(a) Business Development Program requirements

You must be an economically and socially disadvantaged U.S. citizen who owns at least 51% of a business to qualify for the program. The SBA also requires that you have a personal net worth of $250,000 or less and $4 million or less in assets. You must also manage operations of the business on a day-to-day basis. Finally, the SBA takes your personal character into consideration. The website says qualifying businesses must “have all its principals demonstrate good character. It also says you must “show potential for success and be able to perform successfully on contracts.”Note: You must be certified before you can participate in the program. To do so, first create a profile at SAM.gov. Then, visit the SBA’s certification site to complete the process. Once the certification is complete you’ll receive a letter in the mail on whether or not you were approved. If accepted, your approval date and exit day for the program will be on your Dynamic Small Business Search profile.

Community Advantage loans

The SBA offers Community Advantage loans through local lenders to businesses in underserved areas. The loans for minority businesses range anywhere from $50,000 to $250,000. The SBA will guarantee up to 85% of loans under $150,000, and up to 75% of the loan if it’s over $150,000. The interest rates typically land between 7% and 10%. You can use the loan for basically anything that applies to your business. However, you  cannot use the loan for a revolving business line of credit.

Community Advantage loan requirements

You must be able to prove to the lender that you can repay the loan, but the way your lender determines your ability to do so varies from location to location. There are other specific guidelines laid out by the SBA, which are listed below. Note: These qualifications are much more flexible than a traditional 7(a) loan:

• Credit score: Typically, businesses with bad credit don’t qualify for an SBA loan. However, CA lenders are allowed to submit applicants who have at least a score of 140. Still, the lender can also increase this credit requirement as they see fit.
• Length of business time and financial status: As long as a business can provide goals for the future, including business plans, financial projections, and relevant industry experience, lenders should be willing to work with you regardless of how long you’ve been in business or your current financial state.  

When you’re ready to apply, you first need to locate a Community Advantage lender. Use the SBA assistance search page to find one in your area, or visit your local SBA office or business center to learn more. Once you find the right lender for you, they’ll help you submit your application. While requirements vary by lender, it’s a good idea to gather the following while getting ready to apply:

• Business and personal tax returns
• Business financial statements
• Bank statements
• Business plan
• Business debt schedule
• Collateral and personal guarantee
• Legal documents

Note: The approval process for CA loans can be longer than traditional SBA loans. Generally, it could take around 30 days after a lender moves forward with your request to close the loan. However, guidelines for the program stipulate that the SBA should have its part completed within 5 to 10 days.

SBA microloans

Small businesses, as well as nonprofit childcare centers, can apply for loans anywhere from $500 to $50,000 through the SBA microloan program. Technically anyone can apply for a microloan, but the program is designed to help businesses owned by women, veterans, low-income individuals, and minorities. On average, business owners receive around $13,000 through the program. The interest rates typically range anywhere from 8% and 13%, and you must pay the loan back within 6 years. Microloans can be used for:

• Working capital
• Inventory or supplies
• Furniture or fixtures
• Machinery or equipment

You cannot use the loan to purchase real estate or pay off an existing debt.

Microloan requirements

Like the CA program, the microloans are dispersed through designated lenders who have their own set of requirements. The SBA microloan page says the lenders generally “require some type of collateral as well as the personal guarantee of the business owner.” You may also need to participate in training sessions to help you launch or expand a business before the organization considers your application.To find a lender, you can view this list of participating microloan lenders provided by the SBA. You can also contact your local SBA district office to learn more.

Other loans for minority-owned businesses

There are other loan programs for minorities not organized by the SBA. Here are some great options.

Union Bank’s Business Diversity Lending Program

Under the Union Bank’s Business Diversity Lending Program, minority, women, and veteran business owners can receive up to $2.5 million in loan funding. You can choose between a fixed-rate, unsecured, or secured loan term. The organization may give you up to 7 years to repay the loan. You also have the option of obtaining a variable-rate, unsecured, or secured line of credit. The program requires entrepreneurs to “own and actively manage at least 51 percent of the business,” and they must have opened their business at least two years prior to applying. Additionally, the business must have less than $20 million in annual sales. To apply, visit Union Bank’s website.

Indian Loan Guarantee Program

Federally recognized American Indian and Alaska Native groups can receive financing guaranteed up to 90% through the Indian Loan Guarantee program. You can use the money for working capital or to purchase equipment for a business venture. Individual entrepreneurs who have 20% tangible equity in the project the money is funding can receive up to $500,000. The planned project must also help boost the economy of the reservation or tribal service area. To apply, visit the Indian Affairs website.

Business Center for New Americans

The Business Center for New Americans provides short-term loans ranging from $500 to $500,000 to immigrant, refugee, women, and other minority business owners in New York City. The organization offers low, fixed-interest rates, but the you must pay the money back between six months and three years. The organization designed this loan loan to help minorities who cannot receive financing options from other organizations. For that reason, the qualification guidelines are pretty flexible. As long as you can show that you will be able to repay the loan, you’re likely to receive funding. Visit the Business Center for New Americans to learn more about the application process.

Grant programs for minority-owned businesses

Loans for minority-owned businesses are a helpful tool. However, there are several organizations that provide funding to minority entrepreneurs without asking for it back.

Minority Business Development Agency

The MBDA works to connect minority-owned businesses to capital, business contracts, and resources they need to achieve their goals. The agency provides grant prizes continuously throughout the year to selected businesses with ideas for a project. You can also renew these grants after completing the initial project. There are 4 stages to applying for a grant, which you can learn about by watching the video the organization created to explain the process.

National Minority Supplier Development Council

This council focuses on increasing opportunities for certified minority-owned businesses. The NMSDC is a corporate member organization and operates the Business Consortium Fund, which offers both financing and business services for its members. You must first get certified and join the community to gain access to the organization’s resources. To be eligible for certification, your business must:

• Have a minority owner by at least 51%
• Classify as a profit enterprise and be located in the U.S. or trust territories
• Be a U.S.-owned business

If you are eligible, download the certification application here.

FedEx Small Business Grant Contest

FedEx awards more than $250,000 to 12 small businesses each year. According to the company, the contest focuses on awarding grants to businesses who provide “products reaching niche and underserved markets, business models focused on sustainability, and just all-around innovative products.” The contest has awarded many minority- and women-owned businesses since its launch. The contest will open up for the 2021 entries soon. Keep an eye on the FedEx Small Business Grant Contest page for more information.

How to find even more grants

Need help finding more grant opportunities that suit your needs? Try using one of these services that can assist you in locating financing, business assistance, and more opportunities to further your entrepreneurial dreams.

• USA Grant Applications: USA Grant Applications assists minorities with building a business plan and finding the right grant programs. Fill out an application here.
• USA.gov: Not only does the site help you find COVID-19 programs, but it also gives insight on how to finance your business through other grants and loan opportunities. Visit the site to learn more.
• Grants.gov: This US website provides information on more than 1,000 grants offered by 26 agencies. Visit the site to learn how to find great opportunities.

COVID-19 resources

There are many grant and loan programs for businesses who are struggling due to the coronavirus pandemic. Our Homebase COVID-19 Resource Center is packed with national, state, and local resources available to entrepreneurs.