Whether a startup or wanting to expand, small businesses can access multiple financing options. Private and government-backed funding programs offer different lending programs for enterprises of any size and setup, including minority-owned businesses.
Traditional lenders, such as banks, financing organizations, and credit unions, are the leading go-to institutions. Some small business owners prefer non-conventional funding options, such as venture capitalists and angel investors.
If you consider yourself part of the minority, consider the following funding options to improve cash flow or finance your growth expenses:
What Qualifies As A Minority-owned Business?
Generally, a minority-owned business is an enterprise that’s operated by a non-native. For instance, in the United States, it’s described as an entity that’s at least 51% owned by a person who’s part or at least 25% Asian-Indian, African-American, Hispanic, Native American, or Asian-Pacific. For publicly-traded companies to qualify, at least 51% of the stocks must be owned by shareholders belonging to the said minority groups.
In 2015, the US Census Bureau reported about 996,248 minority-owned enterprises, representing a 4.9% increase from the previous year. Of these ventures, more than half were owned by Asians.
7 Funding Tips For Minority-Owned Businesses
Enterprises owned by members of a specific group mentioned above may access funding solutions from both government agencies, as well as private organizations and individuals. Here’s how to access different types of business loans according to your business needs:
1. Get A Certification
Before obtaining access to specialized lending programs and other forms of assistance for minority-owned businesses, the organization must apply for a Minority business enterprise (MBE) certification.
- Federal and local certification: Businesses seeking MBE certification must meet specific federal and local requirements. Apart from business-related documents, these agencies will also ask for documentary evidence to prove ethnicity.
- Private sector certification: Businesses must approach the National Minority Supplier Development Council (NMSDC), the most distinguished certification agency for minority-owned enterprises. A certificate from this body is honored by most states.
Besides acquiring access to funding, getting certified as a minority-owned business can help you link with more established corporations and secure government project contracts. If your goal is to expand and grow, this certification is a must-have.
2. Network With Other Businesses
The business sector is a highly competitive environment. But, it doesn’t mean that you can’t link with other ventures. Getting in touch with other enterprises is necessary for your business operations. For instance, an NMSDC certification can connect you to thousands of other minority-owned business owners, a few of whom may become your suppliers.
Conversely, networking with large multinational companies may help you expand your market base. Whether acting collectively or individually, you might find any of your business acquaintances willing to infuse additional capital to your business as a less conventional funding option.
3. Access Government-Backed Funding Options
Minority-owned enterprises can access several government-initiated programs. Some of the targeted loan products are offered by government agencies, such as the Small Business Administration (SBA).
This government agency has several loan packages that small businesses can avail of. Qualified minority-owned enterprises, including entities owned by women veterans, may access specific loans for different business needs. The good thing about Small Business Administration loans is that they offer low-interest rates and have relatively less stringent requirements for borrowers than other lending institutions.
4. Target Government-Funded Private Loan Programs
To reach out to more businesses, the US Treasury Department has financial partners, such as community development agencies, credit unions, and banks, active in extending loans to microbusinesses, most of which happen to be owned by members of a specific minority group.
Such financial support is called the Community Development Financial Institutions (CDFI) Fund, which has been awarded to at least 950 funding institutions all over the country. There’s an online database that minority entrepreneurs can refer to when searching for institutions that offer this low-cost business funding.
5. Seek Support From Private Organizations
Entrepreneurs shouldn’t stick to lending institutions when looking for additional financing. Minority business owners may also approach non-profits and private institutions as an alternative source.
For instance, through its Direct Lending Program, the Business Consortium Fund (BCF) is open for business owners of different ethnicities. These individuals should’ve been operating their businesses for at least three years and haven’t been successful in getting funds using conventional lending options. An approval could provide minority-operated business access to as much as USD$ 750,000 in financing.
6. Keep Your Business Grant-Ready
Instead of applying for loans, businesses may be better off working on getting a business grant. Unlike loans, grants are awarded to deserving companies. They come in either cash or non-cash forms. They don’t have to be paid off, so your business will have to be highly competitive to get one.
Government and non-government agencies provide numerous enterprise grants for minority-owned businesses. Make sure that you qualify before submitting your application, as the process can be rigorous. Make sure to check out the following tips:
- Check Grants.gov: Start your grant-shopping journey by checking this site out. Funding opportunities are open to a wide range of businesses, including those owned by minorities.
- Minority Business Development Agency (MBDA): This agency operates under the supervision of the US Department of Commerce and was specifically created to target the promotion of minority-operated enterprises specifically. MBDA offers grants to several subsectors of the minority group and offers entrepreneurship classes to recently-released felons. It also has its Enterprising Women of Color Initiative for female business owners. MBDA Business Centers offer business coaching, especially for enterprises owned by minorities.
- Private Groups And Non-profit Grants: The private sector also offers various grants to small businesses owned by minorities, especially those with African-American heritage, and women.
Grants can cover different business-related activities and have various qualifications. Business owners will have to be diligent in searching for online and offline sources, including professional and business networks.
7. Look For Venture Capitalists Focusing On Minorities
Venture capitalists are investors who inject additional capital into a new yet promising company in exchange for a stake in the business. This arrangement is typical to technology startups, but don’t let it stop you.
Members of a minority group can approach additional funding from venture capitalists eager to discover the next most promising enterprise. A tech giant company recently announced that its capital venture wing would set aside USD$125 million for minority-owned enterprises and businesses operated by women in the next few years. In addition, about 45 firms have partnered with the National Venture Capital Association to increase funding set aside for minority-led businesses.
The Bottom Line
Government and private institutions have multiple loans and grants to assist minority-owned enterprises. Businesses must always be on the lookout for these targeted programs to find which one offers the best fit according to their needs. Availing these often low-interest financing opportunities comes in handy for business owners who don’t qualify for traditional loan types with broader qualifications.
