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Are There SBA 7(a) Loan Programs for Minorities?
Right now, there are more than 11 million minority-owned businesses across the U.S.— and that number is growing rapidly each year. While there are no SBA 7(a) loan programs specifically for minorities, the SBA 8(a) Business Development program is designed to favor minority-owned businesses. Plus
Right now, there are more than 11 million minority-owned businesses across the U.S.— and that number is growing rapidly each year. While there are no SBA 7(a) loan programs specifically for minorities, the SBA 8(a) Business Development program is designed to favor minority-owned businesses. Plus, other loans, like SBA Community Advantage loans, can also be a great choice for minority entrepreneurs. In this easy-to-read article, we’ll review some of the best loan choices for minority business owners by looking at their strengths, weaknesses, and how borrowers can get approved.
The Best Minority Owned Business Loans
Some of the best small business loans for minority-owned businesses include:
The SBA 8(a) Business Development Program
The goal of the SBA’s 8(a) Business Development program is to “help provide a level playing field for small businesses owned by socially and economically disadvantaged people or entities.” To do so, the SBA makes it easier for disadvantaged businesses to get government contracts, helps pair newer small businesses with established ones through the SBA's mentor-protégé program, and provides businesses with management, training, and marketing assistance. While the SBA 8(a) program doesn’t actually issue loans, qualifying for 8(a) program can make it much easier for a minority-owned business to get a SBA 7(a) loan.
To qualify for the SBA 8(a) program, a business must:
Be 51% or more owned and controlled by one or more U.S. citizens with economic or social disadvantages (including minorities)
Demonstrate potential for long-term financial success
Be owned/operated by an individual/individuals with no more than $4 million in assets
What are the eligibility requirements for SBA 7(a) loan programs for minorities?
To qualify for the SBA 7(a) loan program, a business must:
- Be 51% or more owned and controlled by one or more U.S. citizens with economic or social disadvantages (including minorities)
- Demonstrate potential for long-term financial success
- Be owned/operated by an individual/individuals with no more than $4 million in assets
In order to get certified as an eligible small business, an owner or operator needs to create a profile at SAM.gov and complete the certification process at certify.SBA.gov.
What types of businesses are eligible for SBA 7(a) loan programs for minorities?
The Small Business Administration (SBA) 7(a) loan program is available to all small businesses, including minority-owned businesses. To be eligible, businesses must meet the SBA's size standards, be for-profit, and be located in the United States or its territories. Businesses must also have reasonable invested equity and use the loan proceeds for a sound business purpose.
The SBA 7(a) loan program offers loan amounts up to $5 million, with terms up to 25 years for real estate and up to 10 years for equipment. Interest rates are typically between 6.5% and 9.5%, and the loan can be used for a variety of purposes, including working capital, equipment, and real estate.
For more information on the SBA 7(a) loan program, please visit https://www.sba.gov/funding-programs/loans/sba-7a-loan-program.
What are the advantages of SBA 7(a) loan programs for minorities?
SBA 7(a) loan programs offer many advantages for minority-owned businesses. These include access to capital, longer repayment terms, and lower interest rates than traditional loans. Additionally, the SBA Community Advantage loan program is specifically designed to help minority-owned businesses access capital. This program offers loans up to $250,000 with an 85% guarantee from the SBA, making it easier for minority-owned businesses to qualify for financing.
For more information, please see the following sources:
How do I apply for an SBA 7(a) loan program for minorities?
In order to apply for an SBA 7(a) loan program for minorities, you must first qualify for the SBA 8(a) Business Development Program. To qualify, a business must:
- Be 51% or more owned and controlled by one or more U.S. citizens with economic or social disadvantages (including minorities)
- Demonstrate potential for long-term financial success
- Be owned/operated by an individual/individuals with no more than $4 million in assets
In order to get certified as an 8(a) eligible small business, an owner or operator needs to create a profile at SAM.gov and complete the certification process at certify.SBA.gov.
Once you have been certified as an 8(a) eligible small business, you can apply for an SBA 7(a) loan. The SBA 7(a) loan program offers loan amounts up to $5 million, with terms up to 25 years for real estate and up to 10 years for equipment. Interest rates are typically between 6.5% and 9.5%, depending on the size of the loan and the borrower's credit score. For more information on SBA 7(a) loan terms, rates, fees, and maturity, please visit this page.
What are the repayment terms for SBA 7(a) loan programs for minorities?
The repayment terms for SBA 7(a) loan programs for minorities depend on the type of loan. For example, SBA Microloans typically have a repayment term of up to 6 years, while SBA Community Advantage loans may have a repayment term of up to 25 years. For more information, you can visit the SBA website.
In order to get certified as an 8(a) eligible small business, an owner or operator needs to create a profile at SAM.gov and complete the certification process at certify.SBA.gov.
SBA Community Advantage Loans
Like SBA 7(a) loans, SBA Community Advantage loans aren’t actually offered by the SBA, they’re simply guaranteed by it. SBA Community Advantage loans are provided by local lenders, typically non-profits, and can be issued in amounts up to $250,000. The SBA guarantees 85% of the loan amount in order to reduce the risk for lenders. Due to this guarantee, Community Advantage loans are often available to borrowers who might not qualify for traditional SBA 7(a) financing, which could include many minority business owners.
SBA Microloans
While not specifically intended for minorities, SBA microloans can be a good choice for minority-owned businesses that need up to $50,000 for startup or expansion purposes. Like SBA Community Advantage loans, SBA microloans are provided by outside lenders, which are also typically nonprofits. In addition to being a great option for minority entrepreneurs, SBA microloans can also be a fantastic choice for women and veterans who are looking for capital for their small business. Despite their benefits, SBA microloans still require borrowers to have good credit, and usually require collateral, which may not make them the best choice for many entrepreneurs in disadvantaged communities.
The National African American Small Business Loan Fund
In 2015, banking giant JP Morgan Chase and the Valley Economic Development Centers (VEDC), a California-based Community Development Financial Institution (CDFI) created the National African American Small Business Loan Fund (NASBLF). The fund has provided loans to minority-owned businesses in Los Angeles, New York, and Chicago, pairing its financial assistance with training, marketing, and technical assistance for small businesses. By 2016, NASBLF had provided more than $2.2 million in loans to businesses across the United States.
Grants May Also Be Available for Many Minority Business Owners
In addition to loans, minority-owned businesses may also want to look into getting one or more grants for their business. Information about federal grants, some which may be specifically available for minorities, can be found at grants.gov. Or, borrowers may wish to check out the Minority Business Development Agency (MBDA), which operates local business centers across the U.S. MBDA business centers are designed to help minority owned small businesses get training and management assistance while keeping them informed about the best loan and grant options that may be available.