Small businesses can struggle to get financing for any number of reasons. Bad credit is often at fault as lenders think twice before issuing a loan to a business that does not have a perfect repayment history. The Minority Business Development Agency says that small businesses owned by minorities tend to have lower credit scores, on average 15 points lower than the average credit score for small business owners in the US. Yet a bad credit score does not exclude you from financing. Read on to find out more about small business loans for minorities with bad credit. We will also highlight some other financing options for minority-owned small businesses.
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There are very few small businesses loans that are geared specifically to small businesses owned by minorities. We will discuss the grants available to minorities later in this article, but when it comes to small business loans your minority status will not really change your loan eligibility. These are some of your options:
- Obtain a credit card. Credit cards can be one way to access business loans, but watch out for high interest rates. Business credit cards can often be obtained despite bad credit and can give your business the cash-flow boost it needs.
- Invoice factoring. Small businesses can become desperate for credit because they find that customers are slow to pay. One way to solve the cash flow problem is via invoice factoring, where a loan is advanced to your business based on outstanding invoices. Consider services such as Fundbox, which provides loans of up to $100,000 – but watch out for potentially high APRs.
You could also choose to work via business organizations set to serve minorities as they may be able to set you up with lenders at preferential rates and coach you through the application process. Consider getting in touch with one of the following minority business organizations:
- Minority Business Development Agency. Working across America, the MBDA helps minority businesses with everything from capital to know-how. The organization has a national network delivering their services, including the advice and connections that can help your business get a loan.
- Minority Depository Institutions. MDI’s are banks that are majority-owned by minorities. You may find that applying for a loan at an MDI-accredited institution improves your chances of successfully getting a loan. The Federal Reserve publishes a regularly updated list.
- Black Business Association. Working for women-owned businesses too, the BBA was established in 1970 and has over the decades helped tens of thousands of businesses grow and develop. It claims it has influence over more than 100,000 minority-owned businesses.
Remember that even if your business does not qualify for a loan you may be able to get a business loan based on your personal credit history. You will be personally liable to repay the loan should the business fail, but personally guaranteeing a business loan could be an option if you are certain about the prospects of your business.
As with general business loans none of the providers offering business loans in this manner focus exclusively on minorities, but the following providers are nonetheless options for businesses with bad credit:
- Kabbage. If you have a personal credit score of over 500 you could get a small business loan with Kabbage, irrespective of your minority status. You can borrow between $2,000 and $250,000 and Kabbage offers APRs as low as 24%. However, some borrowers will pay up to 99% APR with Kabbage.
- Quarterspot. Loan terms are longer with Quarterspot, you can borrow on terms of up to 24 months. You need a better personal credit score to apply, minimum 600 plus. There’s a large maximum loan cap of $200,000 with Quarterspot, with APRs from 30% up to 70%.
A business loan backed by your personal credit score could be a way forward. But there is another option that could get you a large amount of funds, but it requires a lot of work, and qualifying is difficult.
Federal grants are designed to help build businesses and many federal grants are exclusively available to minorities. Grants are typically released to the businesses with the most promise, so you stand a solid chance if your business has a unique product or service and shows the potential for high growth.
Grants are not loans, you do not have to pay a grant back. It is yours to keep. However, expect extremely tough competition. Grants are offered by private institutions too, you have a wide range of choices. Let’s look at some of the grants available to minorities:
- Eileen Fisher grant. Exclusively available to businesses with female ownership ratio of 51%+, the Eileen Fisher Eileen Fisher Women-Owned Business Grant Program has $100,000 available each year. The grant is issued to up to 10 applicants, with at least $10,000 available per applicant.
- InnovateHER Challenge. Every year the SBA’s Office of Women’s Business Ownership offers three female business owners the chance to get up to $70,000 in grants. You apply for the grant by participating in one of 120 local competitions, which eventually leads through to a final selection.
There is a range of business grants that are available to black minority business owners. These include:
- NASE Growth Grant. The National Association for the Self Employed (NASE) Growth Grants program provides up to $4,000 for small businesses. Previous recipients of a NASE Growth Grant have used the funds to buy anything from computers to marketing materials.
- RBEG Program. Aimed at small and emerging businesses in rural areas, the Rural Business Enterprise Grants program can award as much as $500,000 to a qualifying business.
We’ve outlined a number of options for businesses that cannot get access to loans due to bad credit history. Your access to these options will largely be determined by your ability get access to invoice factoring, the credit score of the business owner and whether you can successfully apply for a grant.
Nonetheless, there are small business loans for minorities with bad credit, but the loan may not be made directly to the business – business owners may have to personally guarantee business loans. For the select few a grant can be an option.