The 5 Best Small Business Loans for Minorities

As a minority business owner applying for a loan, knowing your best options can increase your chances of successfully getting funded. In this article, we’ll review the best business loans for minorities. We’ll also answer some common questions about minority business loans and take a look at some other financing options.

Lendio: Best overall for minority-owned businesses

So no matter your situation, you can probably find a loan for your business. You can even compare loan offers to make sure you get the best one.

Lendio can even hook you up with some of the other lenders on this list. It might take longer than talking to those lenders directly, though, since you’ll have to wait a day or two for Lendio to match you with loans.

Kabbage: Best for bad credit

The catch comes with Kabbage’s high rates. You’ll pay substantial fees as you repay the loan, and the repayment structure—which front-loads your fees—is best described as “pretty confusing.” Still, the fast access to funds, even without perfect personal credit, might make the fees worth it.

Fundbox: Best for startups

With Fundbox, you can get either a business line of credit or invoice financing. Like Kabbage, Fundbox doesn’t require a minimum credit score. Even better, Fundbox only requires two to three months of financial history, as well as $50,000 in revenue.

That means that even relatively new businesses can take advantage of Fundbox’s loan offerings, making it a good business loan for startups. And much like Kabbage, Fundbox uses an automated approval process. After connecting Fundbox to your business’s financials, you can get an answer in mere minutes.

Just note that you won’t get very large loans from Fundbox, since it lends a maximum of $100,000, and you’ll pay lots of fees. Even so, Fundbox might finance you when no one else will.

Accion: Best for smaller loans

Accion’s entire mission is to get loans in the hands (and bank accounts) of people who get turned away by traditional lenders. Accion emphasizes that it wants to get to know your business’s unique story and strengths as part of its decision-making process.

To apply, you can connect your bookkeeping software, payment platform, or business checking account so the underwriter can see the health of your business.

After you complete Kabbage’s paperless application process, you can request a Kabbage Card to pull directly from your line of credit when you make a purchase. And as an added bonus, Kabbage provides advice, tips, and resources specifically for women entrepreneurs.

While it doesn’t publish exact qualifications, Accion reportedly has much more flexible application requirements than most lenders. It looks at your credit score, sure, but that’s just one of many factors. And rather than deny you a term loan outright, Accion seems willing to offer you a smaller loan, like a $1,000 microloan, so you get at least a little funding. Even if you get turned down, Accion will offer guidance on how you can get accepted in the future.

Unlike most of the lenders on this list though, Accion has a relatively lengthy and involved application. If you need fast funds, look elsewhere. And while Accion does extend large loans, those large loans seem to be few and far between. Accion’s loans start at $300 through its microloan program, and its average loan size is just under $15,000.

Wells Fargo: Best big-bank option

Wells Fargo offers much of what you want from traditional financing: lots of loan choices, all with long terms and low rates. Unfortunately, that comes with (very) strict borrower criteria. Still, we included Wells Fargo on this list because its rates and repayment terms are just that good.

Plus, Wells Fargo has shown a marked determination to improve lending to minority small businesses. In recent years, this big bank has performed studies on the state of minority small-business financing and then used those results to create programs supporting minority entrepreneurs. So if you’re a minority business owner looking for financing from a traditional financial institution, Wells Fargo should probably be your first stop.

But as we said, Wells Fargo has the strictest application requirements of any lender on this list: three years in business and $1.50 of revenue for each $1 you borrow. If you can meet that criteria, however, you can get some great deals.

If you’re in need of a $25,000 or more loan, Funding Circle should be your first click. However, you’ll need to be in business for two years and have a credit score of 620 to benefit from Funding Circle’s competitive 4.99% interest rate.

Funding Circle boasts high praise from the majority of its customers—the company is BBB accredited with an A+ rating. By far, the most common reason for the positive reviews is due to Funding Circle’s friendly customer service representatives.

FAQs about business loans for minorities

We’ve shown you the best loans for minority businesses, but let’s take some time to answer some common questions.

Why do so many minority small-business owners get rejected for loans?

Believe it or not (you’ll probably believe it), there’s actually a lively debate around this question. A brief from the U.S. Small Business Administration (SBA) Office of Advocacy suggests that minority entrepreneurs get rejected at higher rates because they tend to

• have lower credit scores,
• be less likely to have a house to use as collateral,
• want to fund businesses in less desirable locations,
• operate in less profitable industries, and
• have less “social capital” to help their businesses.

Significantly, the Minority Business Development Agency (MBDA) adds an additional reason to its own list.³ According to the MBDA, minority business owners also

• experience racial discrimination from lenders.

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.

Do minority business loans exist?

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.

Then why did you write this article?

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 based on their personal credit scores. So if the SBA has it right, and minority borrowers get rejected because they may have lower credit scores, Lendio or Kabbage might be a good choice. Most of these lenders also won’t ask for specific collateral from borrowers, so lack of home ownership shouldn’t prove problematic.

Some lenders we featured, like 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.

Why do you keep saying “minority?”

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.

Other funding options for minorities

If you think funding begins and ends with term loans and microloans, think again. Minority business owners have other financing options.

Grants

Grants give your business free money. You don’t have to repay them, and most applications won’t ask for things like credit history or annual revenue, making them a highly desirable option.

Many business grants for minorities exist. For example, the Asian Women Giving Circle gives up to $15,000 to businesses led by Asian American women, and the First Nations Development Institute gives grants to Native nonprofits.

To get a grant, you’ll have to find one you qualify for and then apply. Most grants have lots of applications (everyone wants free money, after all), so don’t expect to be a shoo-in for a grant just because you meet the basic qualifications.

You may have more success looking for local grants. Various organizations in your community might sponsor grants for minority business owners, and you’ll likely have less competition.

Angel investors

Angel investors, well, invest in your business. Usually, they do this in exchange for equity in the business. So you don’t have to repay a loan, but you will have to give up some business profits. Many entrepreneurs find this to be a reasonable tradeoff.

While minority small-business owners get rejected for loans at much higher rates than non-minority small-business owners, that gap largely disappears when it comes to getting angel investors.

About 17% of entrepreneurs trying to get funding from angel investors get it; for minority entrepreneurs specifically, 16.1% get the angel investor funding they seek.4 So minority business owners would do well to look at angel investors.

Our research shows that some prominent minority-focused angel investment groups have come and gone, so you should do some searching to find out who’s currently active in the angel investing scene. But here’s a list of black angel investors to get you started.

Non-financing opportunities

Securing working capital is key to business development, but it isn’t the only way to boost your business. These opportunities won’t directly get you a loan, but they will help you succeed as an entrepreneur.

The SBA has a variety of programs for small businesses, but the SBA 8(a) program specifically awards government contracts to “disadvantaged” small businesses. In this case, that means economically or socially disadvantaged businesses—such as those that have felt the effects of racial discrimination.

Also, many states and cities have local networking groups, often for minorities or specific races and ethnicities. BlackConnect, Latinx Detroit, and Asian American Chamber of Commerce are just a few examples of these small-business networking groups. These groups can provide resources, mentoring, and other business development help.

The takeaway

While minority business owners won’t find loans exclusively for minorities, certain loans may be better suited for minority entrepreneurs. The loans on our list can help you get accepted for funding, enabling your business to thrive.

Disclaimer
At Business.org, our research is meant to offer general product and service recommendations. We don’t guarantee that our suggestions will work best for each individual or business, so consider your unique needs when choosing products and services.

Sources
1. MBDA, “Executive Summary – Disparities in Capital Access between Minority and Non-Minority Businesses”
2. SBA, “Access to Capital for Women- and Minority-owned Businesses: Revisiting Key Variables”
3. MDBA, “Executive Summary – Disparities in Capital Access between Minority and Non-Minority Businesses”
4. MDBA, “Minority Business Owners – Continual Success with Angel Investors!”