SBA loan statistics: Race and gender

It’s in the best interest of the federal government to see businesses succeed. So in an effort to help, it offers loans backed by the Small Business Administration (SBA). These give the lender a safety net knowing that if the borrower defaults, the SBA can help them recoup some of the losses. As a result, lenders might offer SBA loans to business owners they otherwise wouldn’t finance.

And this is a big boon to business owners across the U.S. The most current SBA lending report data shows that between the SBA’s 7(a) and 504 loan programs, more than 45,000 loans were issued in the first half of 2023 with proceeds totaling over $24 billion.

The problem? If you dig into how these business loans are distributed by race and gender, you see some notable disparities. The data shows that SBA loans for minorities and women are harder to come by.

SBA 7(a) loans: Race and gender statistics

SBA 7(a) loans are the SBA’s flagship financing product. These loans come in several different forms, including:

SBA 7(a) loans by race

Data accurate as of: July 7, 2023

According to data from the U.S. Census Bureau’s most recent estimates, the percentage of the population by race breaks down as:

• White: 58.9%
• Hispanic/Latino: 19.1%
• Black: 13.6%
• Asian: 6.3%
• American Indian/Alaska Native: 1.3%
• Native Hawaiian/Other Pacific Islander: 0.3%

With that info, we can drill down by race to get a better idea of how SBA loans for minorities shake out.

Black-owned businesses

While Black people make up more than 13 percent of the U.S. population, they’ve only received 4.4 percent of all SBA 7(a) loan proceeds so far in 2023.

About 3.5 million Black-owned businesses don’t have employees, while just shy of 125,000 have a staff. Of companies with employees, 28.5% of them operate in the Health Care and Social Assistance sector, according to the U.S. Census Bureau. That’s the highest percentage of any minority group. By industry alone, Black business owners should be seeing a slightly higher 7(a) loan approval rates.

Hispanic-owned businesses

Discrepancies in SBA loans for minority small business owners don’t stop there. About 15 percent of nonemployer businesses (4,191,000) are Hispanic-owned, while in 2018 (the year with the most recent data available), 331,625 Hispanic-owned businesses employed around 3 million people. That represented 3 percent growth in Hispanic-owned businesses with employees from 2017 to 2018.

Even as these companies grow and bring on employees, they’ve only been approved for 12 percent of 7(a) loans — despite nearly 20 percent of people in the country being Hispanic/Latino. And worse yet, in dollars, only 8.4 percent of 7(a) funding so far this year has gone toward Hispanic-owned businesses.

Asian-owned businesses

While Asian people only make up 6.3 percent of the U.S. population, Asian-owned businesses account for 11.6 percent of 7(a) loan approvals so far this year and have received nearly 20 percent of 2023’s 7(a) loan proceeds.

About 8.6 percent of American businesses (2,334,000) are Asian-owned with no employees. There are 577,835 Asian-owned companies with employees and receipts totaling $863.3 billion, the largest among minority-owned business groups.

About one in four Asian-owned businesses operates in the Accommodation and Food Services sector. Looking at 7(a) loan approvals by industry, we see that Asian-owned businesses actually get approved at a greater rate than sector average.

Native American and Alaska Natives

Native American and Alaska Natives receive the smallest amount of SBA approvals and funding — less than one percent. SBA lender data shows they typically own more businesses without paid employees (315,000) than employer businesses (24,433).

In the past, the sectors Native American and Alaska Native business owners were commonly found included other services and construction. These are two of the top four sectors that receive the most SBA 7(a) loan approvals.

Ultimately, the 2023 data collected so far is fairly consistent with the data from 2022. If you zoom out, though, it does show some small measure of growth in loans for minority small business owners from 2019 to now, particularly for Black and Hispanic-owned businesses.

SBA 7(a) loans by gender

Data accurate as of: July 7, 2023

Women are an underserved community, making up just shy of 20 percent of businesses with employees. But they own more than 40 percent of companies without employees. And since more than half (50.4 percent) of the U.S. population identifies as women, those numbers have been ticking up, according to data from the U.S. Census Bureau.

That doesn’t mean funding for women entrepreneurs has gotten easier to come by. Only 32.5 percent of 7(a) loans approved this year have gone to companies with at least one woman in the ownership structure. And even less — just 28.3 percent — of total 7(a) loan dollars in 2023 have gone to businesses with at least one female owner.

Women-owned companies are historically concentrated in a few industries: other services (such as salons, pet care businesses), healthcare and social assistance and professional, scientific and technical services. Looking at 7(a) approvals in those sectors, we see that rates align most closely with majority-women-owned companies.

Ultimately, 7(a) approval rates and dollars distributed have only seen slight gains over the last five years. In 2019, businesses with any percentage of female ownership accounted for 30.8 percent of approvals (compared to 32.5 percent this year) and 27.9 percent of total dollars (compared to 28.3 percent this year).

SBA 504 loans: Race and gender statistics

While 7(a) loans can be used for just about anything, including operating costs, SBA 504 loans have to be used to finance major fixed assets (like real estate or equipment). That means you can use them as small business loans to buy machinery or to modernize your existing facilities, but you can’t use them to boost your company’s working capital.

Business owners can get these fixed-rate loans for up to $5.5 million. They’re offered in partnership with Certified Development Companies (CDCs), which put up some of the funding along with the lending institution. Business owners also have to contribute to funding the loan through a down payment (usually, 10 percent).

SBA 504 loans by race

Data accurate as of: July 7, 2023

While the data on these SBA loans for minorities shows that most business owners are white, things are shifting — albeit slowly. In recent years, most of the percentages of both approvals and dollars distributed have ticked up slightly (usually in the range of 1 percent to 3 percent increases).

SBA 504 loans by gender

Data accurate as of: July 7, 2023

Since 2018, about 35 percent of 504 loan approvals have been for businesses with women in the ownership structure, making up around 30 percent of total distributed dollars. Fast forward to today and not much has changed. As the number of minority and women-owned businesses grow, we should see the number and amount of SBA loans for minorities and women increase.

Bottom line

Loans backed by the Small Business Administration are important for helping American companies succeed. But SBA 7(a) and 504 loans for minority small business owners and women fall short in most categories. You might need to seek out alternative financing, such as SBA microloans or Community Advantage loans. These loans have less-strict eligibility requirements, which can help business owners in underserved communities.

Frequently asked questions

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  What is the difference between SBA 7(a) and 504 loans?

  While 7(a) loan proceeds can be applied for the vast majority of business costs — from inventory and payroll to the purchase of assets — 504 loans have to be used to buy or improve a major fixed asset.
  
  One other key difference between SBA 7(a) and 504 loans: the lending institution fully funds the 7(a) loan. With 504 loans, the lending institution puts up a portion, a Certified Development Company (CDC) funds some of the loan and the business owner funds the rest through a down payment.
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  Are SBA 7(a) loans hard to get?

  To a large extent, that depends on the lender offering them because the SBA lets them determine the eligibility criteria. Generally, you’ll need to have been in business for at least two years with a solid credit score and a profit and loss statement that shows consistent revenue. If you can’t qualify for an SBA 7(a) loan, you can explore alternatives like SBA microloans.
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  How long does it take to get an SBA loan?

  It’s not uncommon to take 90 days, although options like Express loans can help you shorten that timeline.