Funding for Minority-Owned Businesses

woman reading paperwork

In the current economic climate, small business owners may find it tough to get funding. Getting access to capital can be even more challenging for minority business owners.

Minority entrepreneurs are more likely to be denied loans, lines of credit, and cash advances compared to non-minority business owners. While they may be more likely to bootstrap operations from savings, minority business owners are starting with 1.5 to 2.75 times less liquid wealth than their non-minority counterparts.

So, how can minority business owners get access to additional capital instead of relying on personal finances?

Does my business qualify as a minority-owned small business?

Being classified as a certified minority-owned business could help to open more doors to funding. The National Minority Supplier Development Council (NMSDC) offers an official certification process for small business owners who meet these qualifications:

  • Must be an independent business that’s at least 51 percent independently owned, managed, and controlled by one or more minority group members
  • Minority ownership must be genuine and not created solely to take advantage of special programs related to minority supplier development
  • The business must be operational, verified through financial documentation, and not a hobby
  • Minority owners must make real contributions to the business and have a share in both the risk and rewards associated with the business

There’s a lengthy process to become certified that begins with completing a pre- qualification questionnaire. Next, minority business owners must submit an online application and supporting documentation to the NMSDC.

A certification specialist will conduct an on-site visit, followed by a committee review, and then a board review. A board of directors makes the final decision on minority-owned business certification, based on the recommendation of the certification committee.

Sources of funding for minority-owned businesses

Minority-owned business funding can take different forms and come from a variety of sources. Understanding the options can make it easier to find funding for minority-owned businesses.

Small business line of credit

A small business line of credit is a revolving credit line that minority business owners can draw against as needed. Similarly, like a credit card — when you use your credit line, the total amount available to you shrinks. You free up available credit as you make repayments toward the balance and only pay interest on the amount you use.

Obtaining a line of credit may offer a solution for minority business owners who need flexible funding. For example, a business line of credit could help cover payroll or short-term expenditures while awaiting payment for outstanding invoices. It also could fund hiring costs, marketing spend, or a longer-term project, such as renovations to revamp your business premises.

Private loans for minority business owners

Taking out loans for a small business is another possibility for minority entrepreneurs. With a small business loan, you’re getting a lump sum of money that you repay over time with interest.

Minority-owned business loans are designed with minority business owners in mind. Lenders may require 51 percent minority ownership but may not require certification.

To apply for a minority business loan, first compare loan options. Local banks, credit unions, and online lenders typically offer loans for minority business owners. When comparing minority-owned business loans, consider these factors:

  • Minimum and maximum loan amounts
  • Length of time in business and revenue requirements
  • Minimum credit score requirements
  • Interest rates and fees

Remember that in addition to financial documentation, you may need to submit documentation that demonstrates your minority-owned status as part of the application process.

Federal government funding for minority business owners

Government entities, including the Small Business Administration (SBA), can represent an important source of funding for minority business owners. In addition to 7(a) loans and microloans, the SBA offers several minority-targeted funding programs:

  • 8(a) Business Development program: This program helps socially and economically disadvantaged small businesses grow by positioning them to compete more effectively for federal contracts.
  • HUBZone program: The federal government uses the HUBZone program to award federal contract funds to certified businesses in historically underutilized business zones.
  • SBA Mentor-Protégé Program: This SBA initiative partners mentors with small businesses to help them gain a competitive edge when applying for government contracts.

SBA-approved lenders provide funds for minority small businesses that qualify for loans. Depending on which program you apply for, it’s possible to get anywhere from

$500 to $5.5 million in loans for your business.

State and local funding for minority business owners

One of the benefits of being a minority-owned business is that you may have funding options available at the state or local levels. The state of New York, for example, sponsors a business development and lending program for minority-owned and women-owned businesses operating in the state.

If you’re interested in finding funding for minority businesses at the state or local level, here are a few places you might look to for help:

  • State economic or business development offices
  • Municipal chamber of commerce offices
  • Local nonprofit organizations

Keep in mind that each one will likely have different criteria that you’ll need to meet to qualify for funding.

Grants for minority business owners

Grants can provide funding for minority business owners without the expectation of repayment. Funding may come from several sources, including federal programs, state and local programs, private businesses, and corporations. Some noteworthy minority business grant options include:

While grants don’t require you to borrow money for your business, there are some potential drawbacks. Obtaining grant funding can prove highly competitive, for one thing, and it isn’t necessarily fast to receive funding. Learning more about the pros and cons of small business grants can help you to decide if they might be right for your business.

Why minority-owned business funding is important

There are many valid reasons why minority-owned businesses need to access funding. These include benefits for the business, for the surrounding community, and for the economy.

Supporting minority communities

Many business owners hope to invest in their communities in the same way that they have invested their time and money into their businesses. Thriving companies usually make an effort to support local government, charities, and other worthwhile causes.

In many cases, the need for business funding is the greatest in the communities where it is the hardest to obtain. Minority business loans can help these companies grow.

Facilitating cash flow management

Most companies don’t realize a positive cash flow during their early stages of growth. Even if owners of growing businesses have an opportunity to reinvest in their company, they may not be able to because they don’t have the funds to cover both the investment and their immediate operating expenses, like payroll and equipment upkeep.

Access to minority loans can make sure that the company can keep its equipment in good condition or take advantage of an opportunity to replace inventory at a discount without worrying about meeting payroll.

Investing in the future

Thriving small businesses have the money to hire more people and help their neighborhoods and city prosper. According to research by the SBA, two out of three jobs added to the economy in the past 25 years have been with small businesses.

Whether a business is looking to regain ground lost in recent years or is trying to expand, obtaining funding is one way to invest in a company’s growth.

Consider multiple funding options for your small business

Small business lines of credit, loans, and grants are just some of the ways that minority entrepreneurs can fund their business efforts. While each one offers a different path to, they’re not mutually exclusive — it’s important to explore the options that are right for you.

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