Even during the best of economic times, financing options for entrepreneurs and start-ups have been limited and hard to access—often dependent on personal connections, perseverance, or privilege. Historically, Minority-owned (in particular Black-owned) businesses have faced the most difficulty when it comes to securing funding, especially during the start-up phase.
In a 2018 report, the SBA found that “Reliance on personal and family savings are the most common sources of financing, especially among Black and Latinx entrepreneurs. However, Black households’ median net worth is about a tenth of that of White households.”
If you’re an entrepreneur of color and you’ve found traditional financing hasn’t worked for you, here’s a comprehensive guide covering a wide number of current financing options and other resources intended to help Black and other minority-owned small businesses (often including start-ups), ranging from Minority small business loans, to grants, to venture capitalists, to educational scholarships, and more.
Small Business Administration (SBA) loans for minorities
SBA Community Advantage (7a) Loans. Under the 7(a) loan umbrella, the SBA offers the Community Advantage Loans program, which is designed to support businesses and entrepreneurs that operate in underserved markets. Unlike many other loans, these are available only through specific community-based lenders who are enrolled in the program. Minority business owners are guaranteed up to 75% for a $250,000 loan, with interest rates of Prime + 6%. If used for working capital, qualified businesses generally have 10 years to repay the loan, plus interest. This program has been extended until September 30, 2022.
SBA Microloan program. Available to almost anyone, SBA Microloans are designed to help small businesses and others start up and expand—especially those that are owned by minorities, women, and veterans. SBA Microloans offer $500 to $50,000 (the average loan being $13,000) and must be repaid within 6 years, with interest rates averaging between 8% and 13%.
SBA’s 8(a) Business Development Program. Created to serve economically and socially disadvantaged businesses, the SBA 8(a) program (while not a loan itself, per se) offers a potential advantage to minority businesses by setting aside a certain percentage of federal contracting dollars for small businesses owned by socially and economically disadvantaged people or entities, thus limiting competition.
Other government resources for minorities
Community Development Financial Institutions include more than 950 banks, credit unions, and other lenders who can access and distribute US Treasury Department funds that are specially-earmarked for minority and economically distressed communities. The CDFI Fund’s searchable database can direct you to certified CDFI lenders in your area who have received funds through such award programs as the Bank Enterprise Award Program (BEA) and Native American, Alaskan Native, and Native Hawaiian (NACA).
Minority Business Development Agency (MBDA) Business Center. An agency of the U.S. Department of Commerce, the MBDA “promotes the growth of minority-owned businesses”. They offer various targeted grants and loans throughout the year, such as the “Entrepreneurship Education Program for Formerly Incarcerated Persons Grant” and an “Enterprising Women of Color Grant Competition.” They offer educational services too, such as MBDA Business Centers, located around the country, to help advise Minority-owned firms seeking to grow, penetrate new markets, and learn about securing capital, competing for a contract, identifying a strategic partner, and more.
The National Minority Supplier Development Council Business Consortium Fund. Certified by the U.S. Department of the Treasury as a Community Development Financial Institution, the Business Consortium Fund (BCF) offers minority business owners a variety of programs. Through their Direct Lending Program, minority business owners can borrow between $100,000 and $750,000, either in the form of a term loan or a business line of credit. To be eligible, you must certify your business as a minority business enterprise through the National Minority Supplier Development Council (NMSDC).
Minority Funds and Loans from Nonprofit and Private Organizations
There are numerous private companies and organizations who can provide funding alternatives for business owners of color.
- Accion is a nonprofit that offers minority entrepreneurs term loans ranging from $300 to $1,000,000 for both established businesses and start-ups, with fixed rates from 7% to 34% APR (depending on your credit score and other factors).
- Business Consortium Fund (BCF) Direct Lending Program caters to minority entrepreneurs who have been operating for 3 years but have been unable to secure financing through traditional channels. Loans are available from $100,000 to $750,000. Eligibility requires your business to be certified through the National Minority Supplier Development Council (NMSDC), but nonprofits are ineligible.
- Union Bank’s Business Diversity Lending Program can provide loans of up to $2.5 million to minority or women business owners. To be eligible, your company must be at least 51% minority, woman, or veteran owned, have been open for at least two years, and have annual sales below $20 million.
State-level funding programs
More localized (and hence, less competitive) funding programs for minority and women-owned businesses may also be available in your area. For example:
- California grants include more than 200 exclusive or well suited for minorities.
- Iowa‘s Economic Development offers a Targeted Small Business Program.
- New Jersey‘s Economic Development Authority offers a Small Business Fund
Business grants for Minorities
Numerous business grants are available for Black and minority-owned businesses. Applying for a grant (particularly if it’s a federal grant) can be a very meticulous process, so here are some tips for success. A good place to start looking for grants your business may be eligible for is to search for current programs listed on Grants.gov. Examples of some minority-focused grants include:
- Rural Business Development Grants are designed to provide assistance to small rural businesses (with fewer than 50 new workers and less than $1 million in gross revenue), including nonprofits ($50,000 to $500,000).
- African American Cultural Heritage Action Fund grants from the National Trust for Historic Preservation’s African American Cultural Heritage Action Fund are designed to advance ongoing preservation activities for historic places such as sites, museums, and landscapes representing African American cultural heritage ($50,000 to $150,000).
- FedEx Small Business Grant Contest is a grant program to award U.S. based small businesses with grants to help them grow and scale their business (up to $50,000).
- SOGAL Black Founder Startup Grants to Black women or Black nonbinary entrepreneurs ($5,000 and $10,000)
- National Association for the Self-Employed (NASE) Growth Grants are available to NASE members ($4,000).
- Sky’s the Limit is an online mentorship portal that also awards a monthly grant to a young entrepreneur (up to $2,500).
- Grants for women of color:
- Legacy Award for a Black woman entrepreneur ($150,000)
- New Voices Fund pitch competitions for women of color entrepreneurs, plus coaching and business skills development (approximately 60 grants per year of $5,000 to $25,000)
- Amber Grants for women entrepreneurs ($10,000 monthly grants or an annual $25,000)
- Girlboss semi-annual project funding grants to female business owners in design, fashion, music, and the arts ($15,000)
Minority-based venture capital
A common route for tech-focused and some ecommerce start-ups, venture capital currently distributes a mere 3% of funding to Black founders, and of that, less than 1% goes to Black female founders. Nevertheless, there is a growing wave of venture capital available from Black-owned VC companies and investors). Here are just a few, and also some tips for applying:
- BLCK VC (Black venture capital resource group)
- Harlem Capital Partners (technology companies only)
- Fvlcrum Fund (affiliated with Clearinghouse CDFI)
- Black Angel Tech Fund
- Hadiyah Mujhid x HBCU.vc
- DiverseCity Ventures
- The Fearless Fund
- Authentic Ventures
- Backstage Capital
- Collab Capital
- PS27 Ventures
Loans from Black-owned banks
Of the 5,066 federally insured banks in the U.S., only 20 are majority Black-owned, according to the FDIC.) If you’re a Black small business owner (or even if you’re not, but want to support a local Black-owned institution) here are 10 of them—plus one new online bank that’s opening in 2021.
- Alamerica Bank (Birmingham, Alabama)
- Broadway Federal Bank (Los Angeles, California)
- Industrial Bank (Washington, D.C, Oxon Hill and Forestville, MD)
- Carver State Bank (Savannah, Georgia)
- Citizens Trust Bank (Atlanta, GA)
- Seaway Bank & Trust Company (Chicago, IL)
- Liberty Bank (LA, KS, MI, MS, IL, MO, and AL)
- One United Bank (Los Angeles, Boston, and Miami)
- City National Bank (Newark, NJ, Harlem and Brooklyn, NYC)
- Mechanics & Farmers Bank (NC)
- Greenwood, Killer Mike (plans digital bank for Black, Latino consumers)
Free mentoring resources for minority businesses
Minority businesses and entrepreneurs don’t only need funding; sometimes you want advice or educational services. Here are some free resources, and even scholarships.
- SCORE provides mentoring and education services for small businesses, through the nation’s largest network of volunteer, expert business mentors. Since 1964, SCORE has helped more than 11 million entrepreneurs.
- Sky’s The Limit.org connects young entrepreneurs of color with volunteer business professionals, experienced entrepreneurs, and peer supporters for live online 1-on-1 mentoring, over 100 hours of learning resources, business tools, and project templates, and monthly opportunities for grant funding.
- Devcolor provides career advice and mentoring services, including interview preparation and career strategy advisory services to dark-skinned software engineers.
Scholarships and free educational resources for minorities
For people of color who aspire to work in a small business or start their own, online resources can provide a helping step up, especially during a pandemic. Here are some organizations that can help, with financial aid, full scholarships, or free online courses.
- Accounting.com has compiled extensive resources to assist minority students in their educational journey toward a career in accounting. These open-use guides include:
- The AICPA Scholarship Award for Minority Accounting Students is designed to help students of different backgrounds become CPAs by assisting with the cost of their college education (up to $5,000/year) and professional development opportunities.
- The AICPA Minority Doctoral Fellowship seeks to increase the representation of ethnically diverse CPA professors in college/university classrooms by providing Foundation awards annual fellowships of $12,000 to full-time minority accounting scholars.
- The International Franchise Foundation runs The Diversity Institute, which promotes and fosters diversity and inclusion within the franchising community.
- Shopify offers ecommerce entrepreneurs a variety of free online courses for upping your business acumen.
When you’re ready to grow, we’re ready to help fund your future
Fundbox is proud of the many minority businesses we help support, through our lines of credit, invoice financing, and PPP loans. Because the lending criteria for a Fundbox line of credit requires a business to have been in operation for several months or years, we understand we are not the first solution you can turn to for funding your start-up. But we’ll be here and ready when you’re ready to grow.
This material was curated as current at the date of its publication and has been prepared for informational purposes only. However, Fundbox and its affiliates do not provide tax, legal, or accounting advice. Please consult your own advisors before engaging in any transaction.