According to research conducted by American Express and SCORE, women and minorities are founders of over 12.3 million businesses in the United States. The numbers have grown at an astronomical state as compared to previous decades. Furthermore, women of color accounted for 47% of all women-owned companies. In total, women and minorities employ over 10.3 million people while generating revenues north of $2.1 trillion.
With the economy booming and minorities starting more small businesses, access to funding is critical to keep up with the growth. There is a clear discrepancy in financing that minorities get as compared to caucasian men. It’s an uncomfortable fact in the spotlight that is being addresses by lenders and financing companies committed to level the playing field. We shortlisted four of the best ways minorities can financing for their businesses:
Microloans are sourced by local non-profits and some are geared specifically towards minorities and women-owned entrepreneurs. While the maximum amount you can borrow is under $50,000, it a good source of financing, especially if you don’t have any collateral to put down. Without any collateral requirements, microloans are more inclusive for under-represented minorities and women.
In terms of requirements to qualify for a microloan, you need a good business plan and a good credit score to show that you are capable of paying the loan back. Do not confuse a microloan with a grant, as you still need to pay the loan back in installments. Just like any other business loan.
The 7(a) program by the SBA is a great source of funding for women and minorities that meet certain strict requirements:
- Excellent credit score
- Have a solid business plan
- Can provide some downpayment and collateral to secure the loan
7(a) loans are guaranteed by the SBA up to 85% of the total principal amount. That means you have to either provide a downpayment or collateral for the remainder. The actual loan is provided by SBA-approved lenders, not the federal agency themselves. Based on a recent poll by NerdWallet, the approval rates for SBA loans are lower than term loans from an alternative lender like Clarify Capital, Headway, or Lendio. The key reason is the strict requirements and amount of paperwork needed to go through the process. Nevertheless, 7(a) loans have some of the lowest interest rates and longest term lengths for minorities that can meet the requirements.
Online business loans from alternative lenders are often the first choice of business funding for minorities and women. Statistically, people from under-represented groups often have lower credit scores due to socioeconomic factors. So alternative lenders like Clarify Capital have become the de-facto place to explore funding your business. With low credit score and no collateral requirements, you can get approved for a sizable amount of working capital at decent interest rates. The core benefit Clarify has over similar financing companies is their large network. When you apply, over 75 different direct lenders compete to offer you the best APR and loan term lengths.
Business term loans for women allow you to get a lump sum of cash up front in exchange for a fixed interest rate. You pay this loan back over a specified amount of time (also known as term length). Once you get approved and funded, you can use the money for any business related expense. There is no specific requirements on how you can use your new infusion of cash flow.
The Bottom Line
Minorities and women of color are an instrumental part of the economy. With the growth women-owned companies are experiencing, having operational capital to help sustain that growth is key to success. The options we’ve outlined above are tried-and-tested mediums to explore for financing your dreams.