Best business loans for minorities in December 2023
Since 2016, all 12 Federal Reserve Banks have collaborated on a Small Business Credit Survey (SBCS). The results from the Federal Reserve remain consistent with numerous other studies that show minority business owners continue to lack adequate access to business financing and continue to see a greater share of loan denials and insufficient funding.
Although historically disadvantaged communities continue to face an uphill battle to get the business capital they need, some banks and financial lenders have been making an effort to combat the racial funding gap. They’re providing donations, grants, accessible loan options and programs aimed specifically at minority business owners. This focus on increasing awareness of racial disparities in business and providing access to financial capital is a necessary step to leveling the playing field.
If you’re a small business owner from an underserved community who needs financial help, check out our picks for best business loans for minorities and learn more about the financing options and additional resources available to you.
Compare the best business loans for minorities in December 2023
| LENDER | BEST FOR | LOAN AMOUNT | MIN. TIME IN BUSINESS |
|---|---|---|---|
| SBA loans | Underserved communities | Up to $5 million | N/A |
| Bank of America | Secured credit building | Starts at $1,000 | 6 months |
| OnDeck | Online lender | $5,000 to $250,000 | 12 months |
| Funding Circle | Flexible repayments | $25,000 to $500,000 | 24 months |
| Accion Opportunity Fund | Low-interest loans | $5,000 to $100,000 | 12 months |
| Kiva | Microloans | $1,000 to $15,000 | N/A |
| Wells Fargo | Unsecured line of credit | $10,000 to $150,000 | 24 months |
| Chase | Special purpose credit program | Up to $500,000 | Not stated |
| OneUnited Bank | Black-owned bank | Starting at $50,000 | 24 months |
| Huntington National Bank | Midwest lender | $1,000 to $150,000 | Startups eligible |
| Hope Credit Union | Southern region | Up to $250,000 | Not stated |
| Union Bank | West Coast lender | Up to $2.5 million | Not stated |
A closer look at our top business loans for minorities
SBA loan: Best for underserved communities
Overview: SBA loans can offer high loan amounts of up to $5 million and may come with repayment terms as long as 25 years. Interest rates are capped, and some lenders have relaxed eligibility requirements. That means even startups and business owners with bad credit may qualify for a low-interest business loan.
Why SBA loans are the best for underserved communities: There are several types of SBA loans that can help historically disadvantaged small business owners. Some lenders like Lendio or Creditfy offer SBA 7(a) loans with relaxed eligibility requirements. In 2022, most of the SBA microloan funding went to disadvantaged communities, including Hispanic and Black-owned small business owners. The SBA also offers the Community Advantage loan, specifically created to help underserved communities.
Who SBA loans are good for: Any business owner that has trouble getting a small business loan from traditional sources can benefit from applying for an SBA loan. But recent data from the SBA shows underserved communities have recently seen large increases in funding. This includes Hispanic business owners, who have seen over 1.5 times more SBA 7(a) and 504 funding go their way. And Black business owners have received more than double the amount of 7(a) and 504 funding since 2020.
Bank of America: Best for secured credit building
Overview: Bank of America has specifically targeted some of its energy toward helping historically disadvantaged communities. They offer down payment assistance specifically for loans to women and minority-owned businesses. They’ve also pledged $1.25 billion to advance racial equity, $1 million of which went toward creating Greenwood Rising, a history center that honors the legacy of Black Wall Street and commemorates the 1921 Tulsa Race Massacre.
Why Bank of America is the best for secured credit building: Bank of America’s cash secured business line of credit can be particularly helpful if you want to build credit. You need to make a $1,000 deposit to get started, but it gets refunded to you with 12 months of positive account performance and converts to an unsecured line of credit.
Who Bank of America is good for: With resources specifically for groups like Black business owners, Bank of America is making the effort to better serve historically marginalized communities. Their cash secured line of credit can be a valuable tool for business owners who want to get a head start on building credit and being eligible for better rates and terms down the road.OnDeck: Best for online lender
Overview: OnDeck offers both lines of credit and term business loans through their online servicing. These loans have fast approvals and funding and are open to fair-credit borrowers. This could be helpful in BIPOC communities, which have struggled to secure financing from traditional banks with strict eligibility requirements.
Why OnDeck is the best for online lender: To qualify, you need a credit score of at least 625, at least one year in business, an annual revenue of at least $100,000 and a business bank account. These requirements are more relaxed than traditional lenders.
Who Ondeck is good for: With OnDeck, it’s easy to check if you meet the eligibility requirements and relatively easy to apply online.Funding Circle: Best for flexible repayments
Overview: Funding Circle offers term loans, business lines of credit and SBA loans. One quick application process can show you which loans you qualify for. Repayment can be made on a biweekly or monthly basis.
Why Funding Circle is best for flexible repayments: Funding Circle gives business owners more flexibility to repay its term loans. Repayment terms range from 6 months to seven years. Most short-term loans have maximum repayment terms of 24 months and most long-term loans start their repayment terms at 12 months. So Funding Circle lets you pay your business loan off earlier than most or the flexibility to stretch payments out as long as you need.
Who Funding Circle is good for: Small business owners with good-to-excellent credit who have been in business at least two years and need fast and flexible funding from $25,000 to $500,000.
Accion Opportunity Fund: Best for low-interest loans
Overview: The Accion Opportunity Fund is a nonprofit specifically developed to advance racial, gender and economic justice for all. Its Small Business Progress Loan is specifically geared for marginalized communities.
Why Accion Opportunity Fund is the best for low-interest loans: To support its mission, Accion Opportunity Fund offers small business loans for minorities from $5,000 to $250,000 with rates as low as 5.99 percent. That’s decidedly on the low end for business loan rates. And that means you can get access to the capital your business needs with less cost over the life of the loan.
Who Accion Opportunity Fund is good for: Accion Opportunity Fund helps a range of minorities, including people who only have an Individual Taxpayer Identification Number (ITIN) and don’t have a Social Security number. Plus, they offer programs and coaching to help you manage your loan, which can be helpful if this is your first time borrowing a large sum.Kiva: Best for microloans
Overview: Kiva made a name for itself offering microloans, or small loans that can go a long way for lower-income entrepreneurs. They don’t offer business loans in the traditional sense, but they do provide a platform that could allow you to crowdfund the capital you need.
Why Kiva is the best for microloans: If you’re looking for a loan of $15,000 or less, Kiva could give you a way to get it with 0-percent interest. The catch? You’re crowdfunding it rather than getting it as traditional loan proceeds, which is a much slower process.
Who Kiva is good for: For marginalized communities who can’t access traditional business lending, Kiva’s crowdfunding offers an alternative. You won’t be able to raise too much with the $15,000 cap and it will require some work, but the 0-percent interest rate may make it worth it.Wells Fargo: Best for unsecured lines of credit
Overview: Well Fargo has made concerted efforts to support underserved communities. Through the pandemic, its Open for Business fund helped more than 16,000 minority-owned businesses that needed support. The bank also offers resources for minority women business owners and the LGBTQ community
Why Wells Fargo is the best for unsecured lines of credit: Wells Fargo offers a variety of business loan types, but their unsecured lines of credit can be particularly helpful. One is open to businesses that have been open for two years or longer and has a revolving credit line of up to $150,000. There’s also a line of credit for newer businesses younger than two years. And both earn rewards on eligible purchases.
Who Wells Fargo is good for: If you have good or excellent credit, you can generally get a line of credit from Wells Fargo. They also offer Small Business Administration (SBA) 7(a) and 504 loans.Chase Bank: Best for special purpose credit program
Overview: JPMorgan Chase put its money where its mouth is with a $30 billion commitment to racial equality. Plus, it has a resource center specifically for minority-owned businesses that includes education and mentorship opportunities. They offer SBA loans, term loans and lines of credit.
Why Chase Bank is the best for special purpose credit program: Chase has a special purpose credit program specifically targeting locations with underserved communities. It started in Dallas, Detroit, Houston and Miami and is now offered in more than 20 cities. That means that if you live in one of the country’s bigger underserved communities, this program might make it easier for you to get access to capital.
Who Chase Bank is good for: With a variety of loan types, Chase’s options are well worth exploring no matter where you live. But if your business is located in a metropolitan area with historically disadvantaged communities, the special purpose credit program could make it easier to get approved with more favorable credit terms.OneUnited Bank: Best for Black-owned bank
Overview: As both the first Black-owned digital bank and the largest Black-owned bank in the country, OneUnited Bank knows what it means to operate in and for historically disadvantaged communities. Plus, they invest 71 percent of their deposits into the community, primarily through housing.
Why OneUnited Bank is the best for Black-owned banks: In partnership with Lendistry, business owners can apply for a business loan even if they don’t have a OneUnited Bank account. And with a $35 million allocation in New Markets Tax Credits (NMTCs), OneUnited and Lendistry have funds they can specifically use to provide loans to to “Qualified Active Low-Income Community Businesses,” which are businesses that serve low-income communities.
Who OneUnited Bank is good for: If you’ve been in business for two years or more and want to partner with a lender that works with a pioneering Black-owned fintech, look into OneUnited Bank’s business loans.Huntington Bank: Best for Midwest lender
Overview: Huntington Bank serves businesses primarily in the Midwest but also has branches located in the South. It’s Lift Local Business® program helps provide minority-owned businesses better access to business loans and lines of credit.
Why Huntington is the best for Midwest lenders: With their Lift Local program, Huntington Bank offers up to $150,000 to business owners in underserved communities. The bank advertises that these loans come with low credit score requirements, longer terms and fewer service fees.
Who Huntington Bank is good for: For minority-owned businesses located in one of the eleven states that Huntington Bank serves, the Lift Local program could be a good fit.Hope Credit Union: Best for Southern region
Overview: If you're looking for small business loans for minorities in Alabama, Arkansas, Louisiana, Mississippi or Tennessee, you should be aware of Hope’s Community Advantage Small Business Loan Program.
Why Hope Credit Union is the best for Southern region: For business owners in these Southern States, the bank’s Community Advantage program can make it easier to get up to $250,000 in loan proceeds. To be eligible, you’ll specifically need to use the money to buy a building for commercial use, equipment, machinery, inventory or business fixtures or to refinance debt.
Who Hope Credit Union is good for: With a large maximum loan amount and a program specifically for minority-owned businesses, Hope Credit Union could be the right option if you’re looking to make a big business purchase or refinance your existing business debt.Union Bank: Best for West-Coast lender
Overview: With its Business Diversity Lending program, Union Bank offers up to $2.5 million in funding to minority-owned businesses located in California, Oregon and Washington.
Why Union Bank is the best for West Coast lender: This bank offers business lines of credit and business loans — including SBA loans — you can use for buying real estate, financing equipment and more.
Who Union Bank is good for: While the details of some of the bank’s initiatives for small business loans for minorities are harder to find after their acquisition by U.S. Bank, it’s still worth a look if you live on the west coast.Bankrate Insight
Research by the public policy think tank Third Way found five reasons why minority business owners struggle to gain access to capital:
- Lack of access to community banks
- Fewer collateral options to secure loans
- Stricter underwriting criteria
- Fewer banking relationships
- Less incentive for banks to offer the types of loans that benefit minority business owner
What are business loans for minorities?
This has changed in recent years. Historically, it meant any loan proceeds offered to minority-owned businesses. But now, thanks to programs specifically geared toward supporting business owners in underserved communities, these loans increasingly come from special programs or get funded by specifically allocated money.
Ultimately, though, business loans for minorities go to a business owned by someone who qualifies as a minority.
What qualifies as a minority-owned business?
To be a minority-owned business, the company needs to be at least 51-percent owned by individuals who are considered minorities. This can vary, but according to the Minority Business Development Agency, which is the only federal agency that promotes the growth and development of minority owned businesses, a minority is:
- Black
- Hispanic/Latin American
- Asian-Indian
- Asian-Pacific
- Native American
- Hasidic Jew
Depending on the lender and their program, business loans for minority-owned businesses may also get extended to other underserved communities, like businesses owned by women, veterans and LGBTQ+ community members.
How does a minority business loan work?
Generally, these loans work similarly to any type of business financing: you apply for the loan, get approved, get the loan proceeds and then need to manage them. Business loans can help cover just about any business-related need, including starting a business, covering day-to-day costs, emergencies and debt consolidation.
Some small business loans for minorities also come with mentorship and education components. These aim to help you better manage the loan — and your business in general.
Requirements for a minority business loan
That depends on the loan and the lender’s specific requirements. Generally, they’ll look at your:
- Personal and business credit score
- Time in business (you usually need at least six months)
- Business finances (existing debts, annual revenue)
- Industry (some lenders won’t work with businesses in higher-risk industries)
Types of minority business loans
Business loans for minorities can come in a lot of shapes and sizes. You can find low-interest business loans, fast business loans — even business loans for a 500 credit score. Here are a few of the broad categories you may want to explore for financing your company needs.
SBA loans
The U.S. Small Business Administration guarantees SBA loans, which helps to make them more affordable. Their Community Advantage program can be particularly helpful since it’s designed for underserved communities. This program expires October 31, 2023, but lenders in the program have the chance to convert to Community Advantage Small Business Lending Companies with the power to provide traditional SBA 7(a) loans to underserved communities. The SBA also offers microloans, which can be helpful to business owners in historically disadvantaged communities. In 2021, 41 percent of the SBA microloans went to underserved communities.
Term loans
With term loans, the lender gives you a lump sum and you have a set amount of time (the loan term) to pay it back, usually in monthly installments. These are typically long-term options that have lower interest rates than other types of loans.
Microloans
These loans are generally on the smaller side, less than $50,000. They can be through the SBA or nonprofit lenders, or they can be crowdfunded through platforms like Kiva.
Lines of credit
Lines of credit are a lot like a credit card. As you pay back what you borrowed, you can use it again. If you need cash flow on an ongoing basis, this might be right for your business.
Invoice factoring and financing
Invoice factoring and invoice financing both involve getting cash for your unpaid invoices — albeit less than the full invoice amount. This type of financing is more accessible to borrowers with bad credit since financing and factoring companies are more concerned with the creditworthiness and payment history of the invoiced clients.Merchant cash advances
Merchant cash advances can help cover short-term costs like emergencies and seasonal cash shortages. Funding is based on past credit and debit card sales. This is one of the most accessible forms of business loans, but there are considerable downsides to be aware of. The biggest disadvantages are that interest rates can rise into the triple digits, and repayment terms are usually daily or weekly.
Bankrate Insight
A lender can deny your loan if you ask for more than you can reasonably afford to repay. If you only need small loan amounts, check out our guides on the following loan amounts:
Pros and cons of minority business loans
Pros:
- Cash flow support. As a business — and particularly if you’re one that’s growing — having liquid capital can make all the difference. And small business loans for minorities can help you get just that.
- Credit-building opportunities. Borrowing money gives you the chance to pay it back on the agreed-upon schedule. And as you do that over time (assuming your lender reports to the credit bureaus), it gives your credit score a bump.
- Potential added perks. Some loans and lines of credit for underserved communities come with wraparound education and mentorship opportunities, which can help build your business skills and improve your chances of success.
Cons:
- Potential for higher rates. Because traditional business loan lenders have long seen historically disadvantaged communities as higher-risk borrowers, your business loan has the potential to come with a higher interest rate and loan fees. Shop several options to make sure you’re paying as little as possible here.
- Fewer options. If you’re looking for loans specifically geared toward minority-owned businesses, you’ll need to do your homework. Many lenders still don’t have tailored programs here.
- Collateral requirements. A lot of small business loans for minorities require you to put up collateral. Think carefully before you put something on the line that you would be pained to lose.
Who should get a minority business loan?
The people who own and manage minority-owned businesses should at least look into these types of loans. While there aren’t a lot of options, you absolutely have more choices than you used to. And these types of loans can come with significant perks, like lower interest rates, low credit score and eligibility requirements or education programs.
Ultimately, you should compare both small business loans for minorities and business loans from traditional lenders. That way, you can determine which is best for your specific business and its unique financial goals.
Bankrate Insight
As you’re exploring business loans for minorities, watch out for:
- Lenders that ask you to pay cash before they fund your loan
- Promises of guaranteed approval (this is often a sign of a scam)
- Prepayment penalties
- Tight action timelines — you should be able to take your time to fully explore your loan options
Alternatives to business loans for minorities
Where to get a business loan for minorities
You can start with all of the options we’ve already highlighted, of course. But if you’re looking to broaden your scope, check out:
National banks
Think: Bank of America, Wells Fargo and Chase. Look specifically for banks that have special purpose credit programs because that means they’ll have funds specifically allocated to helping issue proceeds for small business loans for minorities.
Online lenders
Online lenders typically have higher rates and fees but can often move faster than traditional banks and credit unions. They also tend to be more accessible than traditional lenders.
SBA lenders
The SBA backs a lot of small business loans. And knowing the SBA is behind your loan might make it easier to get approved, so you may want to check for lenders specifically offering SBA loans.
Community Development Financial Institutions
Community Development Financial Institutions (CDFIs) often target their support for underserved communities. You might be able to find a CDFI that issues loans to minority-owned businesses who will get behind you.
Minority Depository Institutions
In 2019, a study from the Federal Deposit Insurance Corporation (FDIC) found that Minority Depository Institutions (MDIs) originate more SBA loans to borrowers in historically disadvantaged communities. In other words, if you’ve had a hard time getting a loan, working with an MDI might increase your odds of approval.
Bankrate Insight
Frequently asked questions about business loans for minorities
Methodology
To choose the best business loans for minorities, we researched banks with relaxed eligibility requirements and programs that are specifically geared toward helping minority business owners .We then considered features that make loans affordable and accessible to businesses with different characteristics and needs, including interest rates, whether the loans are secured or unsecured, minimum annual revenue and fees. These lenders were also evaluated for notable qualities such as funding speed and nontraditional eligibility criteria.
Additionally, lenders are reviewed using a 22-point scale. We measure quality in five key areas: Accessibility, affordability, transparency, customer service and flexibility. Based on the results, lenders are given a rating between 1 and 5:
- 4.5 or higher: Outstanding
- 4 to 4.5: Excellent
- 3.5 to 4: Good
- 3.5 and under: Average