As a result of the 2007-2008 financial crisis, many lenders began tightening up their lending requirements for both individuals and small businesses. This has presented many small business owners with a challenge as they have sought small business loans to help expand their businesses. It has proved an even larger challenge for minority small business owners.
The Minority Business Development Agency in the United States has stated that minority business owners are more likely to have lower credit scores, meaning that they have a more difficult time securing small business loans. This issue is compacted by the findings in a recent report by the Center of Responsible Lending that found that minority homeowners were impacted heavily by the foreclosure crisis. The high percentage of foreclosures in the minority population has made it even more likely that a minority small business owner will have a low credit score, thus making it even more difficult for he or she to be granted a loan.
Despite the tightening lending regulations, there are still options available for minority small business owners. There are a variety of online small business loan options available to help minority entrepreneurs.
For New Entrepreneurs
It can be difficult to find banks or institutions that are willing to loan to a new small business. Financial institutions prefer to lend to businesses that have been operation for more than a year so that they have some idea of what kind of income and repayment history the business has. This can make finding funding to get a business up and running a frustrating process. However, with some creative thinking entrepreneurs can find the funding they need to start up their businesses. For instance, the Small Business Administration (SBA) offers loans for new businesses. Other options include:
• nonprofit lenders,
• credit cards,
• personal loans,
• borrowing money from family and friends.
For Entrepreneurs with a Credit Score of 500+
For small business owners with a poor credit score, Kabbage offers loans between $2,000 and $100,000. To qualify, entrepreneurs will need to have been in business for one year and show at least $50,000 in yearly revenue. Loans must be repaid within six to 12 months and the annual percentage rates (APR) range between 24%-99%. Due to these factors, a small business loan from Kabbage is best suited for entrepreneurs looking for short-term, quick working capital.
For entrepreneurs with a credit score of 500, OnDeck can provide quick access to the money needed. OnDeck requires that the small business have been open for at least a year. Other requirements include sales of at least $100,000 per year and no bankruptcies within the two years preceding the loan application. Businesses can borrow between $5,000 and $500,000 with APRs ranging from 9%-99%. These terms are well suited for expansion purposes.
If a small business has unpaid invoices from customers to borrow against, Fundbox is another lending option. Entrepreneurs can borrow between $1,000 and $100,000 with variable APR rates depending on whether the loan is to be paid in a 12-week installment or a 24-week installment. Fundbox does not require the business to have minimum yearly revenues and there is also no minimum credit score. However, the business must have accounting software in use that can link to Fundbox. One of the primary benefits of utilizing Fundbox is that there are no penalties for paying off a loan ahead of schedule.
For Entrepreneurs with a Credit Score of 600+
Streetshares is a great option for small businesses that are in need of working capital and only need less than $100,000. They offer both traditional small business loans and lines of credit with APRs between 9% and 40%. To qualify, an entrepreneur must not have filed for bankruptcy within the previous three years. Another requirement is that a business cannot borrow a loan equaling more than 20% of its annual income.
Entrepreneurs with a strong flow of income may find SmartBiz to be an attractive lending option due to the low APR rates of 8%-8.7%. SmartBiz also offers SBA loans on a quicker basis than other banks. Small business owners must meet the SBA’s eligibility requirements, including credit score cutoffs. The business must have made at least $50,000 in revenues annually and in business for at least two years. Entrepreneurs cannot have a history of bankruptcies or foreclosures within the previous three years.
For entrepreneurs who want low APRs without the longer wait times at SmartBiz can opt for financing from Bond Street. Bond Street offers loans between $10,000-$1 million with APRs between eight and 25 percent. In order to qualify, the business must have been in operation for at least two years and pull in $200,000 of revenue yearly.
The SBA offers loans and micro-loans with low APRs. Loans and micro-loans such as the SBA’s 7(a) loans, Community Advantage loans, Opportunity Fund, Accion and LiftFund are available for qualifying minority business owners, as well as for small businesses operating within underserved areas. The best way to learn more about SBA loans and micro-loans is to contact your local SBA office.
Some lenders and organizations offer loans that are specifically targeted towards minority business owners. JPMorgan Chase has promised to earmark $75 million in capital to minority owned businesses. Some of that money has been granted towards organizations like LiftFund and the Association for Enterprise Opportunity.
Entrepreneurs should always shop around for the best APRs and loan terms available to them. Thorough research and knowing exactly what the business needs can help a minority small business owner find the best loan for his or her business.