In 2022, minority-owned businesses will be in an excellent position to flourish financially. In fact, census statistics on minority-owned businesses indicate that minorities are rising and will continue to excel in the decade to come. With this data in mind, it’s an inspiring time for minorities to start and build their businesses with suitable loan options, such as through the small business association.
Despite the opportunities available, there remains a significant disparity between the national population of minorities and the ratio of minority-owned businesses to the majority. A lack of substantial funding can only explain this disparity. Minority businesses struggle to stay afloat, while most competitors have no problem accessing loans.
However, minorities have access to unique options, primarily through the Small Business Association (SBA), to stay strong in the years to come. The most significant advantage minority business owners have is knowing the loans available and the cost-to-benefit of those loans. We at BitX Funding believe everyone has the right to appropriate funding. This article will discuss SBA loan options, advantages, and alternatives to get you started on the fast track to success.
What is the Small Business Association, and How Does it Work?
The small business association (SBA) is a government-operated organization coordinating small businesses with lenders to receive specific loans. The SBA is not a lender and doesn’t personally give out any money to small businesses. Instead, the SBA sets the guideline for the loan and finds partners willing to lend directly to the small business.
While the SBA doesn’t hand out money directly, it takes on the lender’s risk up to 85%. It also pays any fees that the small business cannot make up. For these reasons, small businesses consider SBA loans the holy grail. They are one of the most competitive loan programs available. However, the SBA risk makes applying for and approving these loans tricky and timely. We also note that qualifying for an SBA loan requires at least two years in business, a 650+ credit score, and at least 300k in annual revenue.
SBA 7(a) Loans for Minorities
The SBA 7(a) is one of the most popular programs and can guarantee loans up to $5 million for small businesses. Additionally, the SBA can guarantee up to 85% of the loan, up to $150,000, and 75% for higher loans. These loans are highly sought after for their versatility. The funds can be used for real estate development, equipment financing, scaling, and revolving long- and short-term capital. This versatility makes 7(a) loans an excellent option for expanding businesses. Payments typically occur monthly, and loan interest rates come out at >3%.
All in all, SBA 7(a) loans are the most popular option and one of the most competitive. For minorities, SBA 7(a) loans are an exceptional option to build and scale your existing business.
SBA Microloan Program
As an alternative to the 7(a) loan, the microloan program offers loans up to $50,000 to small businesses. With the average loan going for $13,000, these are primarily for quick access funds that can be paid back within six years. Because of the competitive loans and the limited funds available, interest rates usually go up to 8-13%. These interest rates make these loans optimal in the short term, but costly the longer they’re drawn out.
The best use of the microloan program is for minority business owners seeking versatility in funds to help cover costs in the short term. You can use funds for working capital, supplies, furniture, and smaller equipment. While the funds are versatile, you may not use them to pay off existing debt or purchase real estate. For the latter, 7(a) loans are the best option.
SBA 8(a) Business Development Program
The small business association 8(a) business development program aims to “award at least 5% of all federal contracting dollars to small disadvantaged businesses each year”. For this reason, the 8(a) program is a robust option for minority businesses in operation for at least two years. It targets explicitly socially and economically disadvantaged small business owners in the US.
Rather than solely partnering your business with a lender, the program gives small businesses exclusive access to federal contracts. The program also includes nine years of business assistance, mentorship, and expert assistance with your business. The first four years involve a development stage to build your business. A transition phase has occurred in the last five years to help companies scale according to their competition.
SBA Community Advantage Loans for Minorities
Where the business development program helps aid underserved businesses to grow, the community advantage loans are for minority businesses seeking capital for their companies. Similar to 7(a), the small business association pairs minority businesses with intermediary community lenders. Loans go up to $250,000 and promote economic development for underserved companies. This program also offers technical assistance and portfolio management if business owners require it.
The community advantage loan program is best for businesses in underserved markets to expand their interests and scale their business to new heights. While this is a pilot program and one of the more unique options available to small businesses in the US, it’s a promising option in the years to come.
Learn More About Loan Opportunities for Minorities with BitX Funding
In 2022, after over a year of COVID-19 and economic strain in the US, it’s time to rebuild and reclaim our small businesses. For minority-owned small businesses, the stress has been especially severe. Many minority business owners are wondering how to survive in the upcoming year. However, with small business administration assistance, minority businesses can not only survive but thrive in the years to come.
Through access to SBA loans, minority-owned businesses have unique opportunities to gain the liquidity they need to rebuild and restructure their businesses. That’s where BitX Funding has you covered. We’re your trusted online marketplace for small business loans. Not only can we team you up with trusted lenders within hours, but we also have the resources and tools to inform you of the best options for your business. Our online marketplace is always available to assist your needs and bring you to the top of your game. For more information, contact BitX Funding today.
For more information on SBA loans for minorities, contact BitX Funding by phone, email, or by filling out the form below.