Minority-owned businesses represent a growing portion of America’s small business economy. According to data from the U.S. Census Bureau, minorities owned 8 million of the country’s small business enterprises in 2012, up from 5.8 million in 2002. Given the country’s steady economic growth, that number will almost certainly be higher by 2022.
Despite the increase in the number of minority-owned businesses, however, many MWBE owners find that securing financing is tough. Startups, in particular, may have a hard time qualifying for even short-term financing, since most lenders want to see at least two years of profitable operations before granting a business loan. Similarly, business owners with a less-than-perfect credit score will have difficulty getting a traditional small business loan. Nonetheless, a few viable options do exist, although they typically come with multiple limitations and high borrowing costs.
Financing for Business Owners with a Low Credit Score
Many minority business owners have lower-than-average credit scores. According to a 2016 study by Experian, the average business credit score of minority-owned businesses is 49.7, five points lower than the overall average business credit score in the United States. Women and minority owned businesses also struggle with repayment of credit card debt more often than the average small business in the U.S.
But a low credit score doesn’t necessarily exclude you from every source of small business funding. For example, Kabbage and Fundbox will grant a short-term line of credit to business owners regardless of their credit score, although fees and interest rates are quite high. Here’s a rundown of the amounts available and typical terms.
- Amounts available: $2,000 to $150,000 (Up to $250,00 following a longer review)
- APR: 24 to 99 percent
- Term: 6 or 12 months
- Funds availability: minutes to a few days
Additionally, you must be in business for a minimum of one year and have annual revenue of at least $50,000 to quality
- Amounts available: $1,000 to $100,000
- APR: 15 percent to 59 percent
- Term:12 weeks
- Funds availability: usually the next business day
You must be in business for at least six months and have an annual revenue of at least $25,000 to quality.
Financing for Business Owners with a Credit Score of 600+
Minority business owners who have a personal credit score of between 600 and 700 may have an easier time accessing credit at more reasonable terms. For example, StreetShares is a small business lender which lends primarily to veterans, 22 percent of whom were minorities as of 2014. The company offers term loans and lines of credit in amounts up to $100,000 with APRs of between 9 and 40 percent. However, you’re limited to borrowing 20 percent of your annual revenue. So if your annual revenue is $50,000, you’re limited to $10,000.
Another option for minority business owners with a fair credit score and at least one year in business and $100,000 in annual revenue is OnDeck. The company offers lines of credit up to $100,000 and term loans of up to $500,000, and requires a minimum credit score of 500. However, typical borrowers have a credit score of 660+. Repayment terms and interest rates are shown below.
- APR: 9 to 99 percent
- Term: 3 to 36 months
Line of credit
- APR: 14 to 40 percent
- Term 6 months
Small Business Administration Loans
The U.S. Small Business Administration offers a number of funding and other opportunities for disadvantaged business enterprises, which includes businesses owned by women, minorities and veterans. These include:
- Small Business Advantage Loans, which are available to businesses located in underserved communities throughout the United States. Use the SBA Lender Match tool to find a lender in your area.
- SBA Microloans are loans of up to $50,000 offered through various nonprofits at rates of between 8 and 13 percent and a repayment period of up to six years.
- The SBA 8(a) business development program, which helps small, disadvantaged businesses qualify for government contracts by offering business training, counseling, marketing assistance, and other resources through the SBA. Learn more about the program and how your business can become certified as a DBE here
The Carmoon Group Ltd. is a New York-based insurance brokerage that helps small, developing businesses manage risk and secure funding needed for growth. If you’re a minority or woman owned business in need of guidance, give us a call to set up an appointment to discuss your needs today. Too busy to call? Just reach out online and we’ll get back to you at a convenient time.