We’ve shown you the best loans for minority businesses, but let’s take some time to answer some common questions.
And at least one study backs that up. Researchers sent nine businessmen to various traditional banks in search of a $60,000 small-business loan. Each man was dressed identically, had similar body types, and possessed similar educational and financial backgrounds. The only difference? Three of the men were white, three were black, and three were Hispanic.
You can guess what happened. The black and Hispanic businessmen received less information about loans and less help with the application process. They were even less likely to get offered a business card. Instead, they got more questions about their personal financial situations.
So when a minority business owner gets denied funding, it could be because of legitimate reasons or plain old racism. Either way, the high rejection rates for minority small-business owners usually leads to our next question.
No, there’s no such thing as a business loan exclusively for minority business owners. Lenders can’t discriminate on the basis of a borrower’s race. So while that means they can’t reject you because of your race, they also can’t approve you or give you special terms because of your race.
Note that you might see minority-specific loan programs. These generally help minority business owners strengthen their applications for loans or guide them through the loan process. They are not loans themselves.
While minority-specific loans don’t exist, we think these loans can work well for minority business owners who worry about getting rejected for traditional financing, whether that’s because of their credit history or because of discrimination.
For example, most lenders on this list don’t disqualify borrowers if they have lower-than-average credit scores. So if the SBA has it right, and minority borrowers get rejected because they may have lower credit scores, Fundbox or Kabbage might be a good choice.
Likewise, most of these lenders also won’t ask for specific collateral from borrowers, so lack of home ownership shouldn’t prove problematic.
Several lenders we featured, including BlueVine, Kabbage and, Fundbox, have automated applications. If the MBDA’s theory about racism proves correct, an automated approval process can help overcome the biases of a human loan officer or underwriter.
Likewise, Wells Fargo has taken steps to address racial bias in lending, meaning it might be a better choice than other traditional banks. Similarly, Accion emphasizes lending to minorities and other disadvantaged groups, and its microloans have looser lending requirements than many traditional lenders.
The point is, the loans on our list may not be minority-specific, but they can help address some of the reasons minority business lenders get rejected for financing.
We’re aware that not everyone loves “minority” as a label. To be frank, we’ve used this term for two reasons:
Various government agencies, like the MBDA and the SBA, use “minority” in their reports, program names, and resources. Most lenders and investors have followed suit.
As a result, “minority business owners” gets a lot more search volume than similar terms. We want to make sure people who need this article can find it, so we’ve stuck to the term.