Minority-owned businesses have been credited with driving the economy’s growth. However, they are at a disadvantage when it comes to accessing funding necessary to scale business operations. It also doesn’t help that many minority small-business owners don’t know how to get funding. This article has all the answers.
Ideal Loans for Minority-Owned SMEs
There are dozens of types of loans ideal for minority-owned SMEs. The best ones are:
- SBA Loans
The U.S. Small Business Administration (SBA) was purposely built to fund small businesses, including minority-owned ones. There are different categories of loans under the SBA program, and they have distinct technical differences. For example, the SBA 7(a) loan program is ideal for SMEs with the highest growth potential, while the SBA microloan program is ideal for SMEs looking for less than $50,000.
- USDA Business Loans
United States Department of Agriculture (USDA) loans are meant for businesses located in rural America. The USDA defines rural America as towns with fewer than 50,000 residents. The best thing about these loans is that they have few requirements – they are almost guaranteed. They also come with incredibly low-interest rates, and they can extend up to $25 million.
- Non-Profit Loans
Dozens of non-profit institutions have dedicated their resources to funding minority-owned SMEs. Each NGO has its requirements for lending, so it is a question of your lender of choice.
- Business Consortium Fund Loans
This is the last resort for minority-owned SMEs that fail to secure funding through all other channels. These loans are specifically tailored for this niche of businesses, and they range from as low as $500 to as high as $50,000. They also come with incredibly low-interest rates capped at 3%. One of the main requirements is that your business should be registered with the National Minority Supplier Development Council (NMSDC).
Similar to online business finance solutions, crowd-funding has been made easier by the rise of online social platforms. It involves asking for funding from total strangers out of their own goodwill. However, you have to be impressive and convincing to speak to people’s generosity. The best thing about it is that you don’t have to repay the money – however, there will be accountability for how you use the money.
Tips to Qualify for a Loan Application
The main reason why traditional lenders shy away from funding minority-owned businesses is because of uncertainty. They need assurance that they will be repaid, and this will require impeccable preparation and presentation on your part. The following tips will help:
- Prepare All Necessary Documents
You will have to jump through a lot of hoops to push your funding application through. Your chosen lender will do a thorough check on your business to determine your application’s suitability. Save them the time and trouble by having all your documentation ready – remember: you only get one chance to make a first impression, and the stakes are incredibly high.
- Argue & Prove Your Business’s Potential
Lenders are looking to fund businesses that will generate enough revenue to repay the loan and grow. As such, argue your business’s potential for growth and back it with candid research and planning.
- Maintain a Positive Credit Score
Lenders mostly rely on the credit score rating to determine an SME’s suitability for funding. As such, maintain a good credit score to inspire confidence in your ability to repay the loan. A good credit score will eventually make you eligible to work with larger traditional lenders.
Look to the Future!
Your SME has the potential to grow into a successful enterprise. You will need some help along the way, and these tips will help you secure funding to give your SME the wings it needs to fly. You will also need one-on-one support and guidance.