How to Fund a Minority Owned Business
Due to certain factors, financing options may become limited. However, whether it is for helping the company take off or for expansion of operations, funding can be easier if you have a minority-owned business.
What is a minority-owned business?
A minority-owned business is a non-profit or for-profit organization where the ownership of the majority of the shares (at least 51%) is held by at least one minority member.
The California Public Contract Code defines minority as “a citizen or lawful permanent resident of the United States who is an ethnic person of color and who is: Black (a person having origins in any of the Black racial groups of Africa); Hispanic (a person of Mexican, Puerto Rican, Cuban, Central or South American, or other Spanish or Portuguese culture or origin regardless of race); Native American (an American Indian, Eskimo, Aleut, or Native Hawaiian); Pacific-Asian (a person whose origins are from Japan, China, Taiwan, Korea, Vietnam, Laos, Cambodia, the Philippines, Samoa, Guam, or the United States Trust Territories of the Pacific including the Northern Marianas); Asian-Indian (a person whose origins are from India, Pakistan, or Bangladesh); or any other group of natural persons identified as minorities in the respective project specifications of an awarding department or participating local agency.”
In certification, this characteristic remains constant among all certifying agencies.
How does your business become certified?
How do you apply?
You have four options on how you can get certified as a minority-owned business:
SBA 8(a) Business Development Program
Eligible persons are socially and/or economically prejudiced U.S. citizens who own or control a majority of the business.
Your business must not be owned by another business that is a certified minority-owned business. Thus, the 51% ownership criterion must be direct. Moreover, it should be in operation for at least two years.
Aside from meeting the qualifications, the business must also be able to show that its potential for success. This can be proven through income tax records that show the business is actually earning.
If you ever have problems or queries about the process, you can avail of free one-to-one counselling through the SBA that will help you prepare the documents you need.
National Minority Supplier Development Council Certification
Businesses with at least 51% ownership belonging to U.S. citizens who have at least 25 percent Native American, Asian-Indian, Hispanic, Black, and Asian-Pacific heritage are qualified for this certification. Documentation, of course, ae required to support heritage claims.
Contact any of NMSDC’s 37 regional councils to obtain a standardized application form and documents. This certification can cost you anywhere from $350 to $1,200.
Department of Transportation’s Disadvantaged Business Enterprise Program
This certification is available to minorities, women, and people with disabilities who own at least 51% of the business.
No matter what the disadvantage, you must also be able to manage and run your own firm which you can prove through their site visit.
Department of Transportation (DOT) awards 10% of the money spent on contracts to minority-owned businesses. To give more opportunities to lower income groups, the owner of the business must not have a net worth exceeding $750,000.
State and Local Programs (MBE)
Among all certifications, their requirements are the easiest to comply with, yet offering the same advantage to their members.
For most of their programs, they will only look at the ownership of the business. At the very minimum, it should be 51% owned by minority entrepreneurs. Unfortunately, the cost of their certification varies too much to set a range on it.
What are the funding options specifically for minority-owned businesses?
Some of the options listed here may only be members of a particular minority group. In some cases, it is not for minority members alone, but it has been known to favor this group largely.
National African American Small Business Loan Fund
Whether to expand business operations, to finance equipment, or to augment current business revenues, African-American businesses in Chicago, Los Angeles, and New York City can take out a loan ranging from $35,000 to $250,000.
To apply, you only need to submit some basic information about your business and your financial needs.
Even with a credit score as low as 550, your business can take out a loan with Accion. Their programs are minority-oriented, with over 60% of their clients belonging in a minority group.
With the funds used for almost all kinds of business expenses, they have a wide service coverage, making them a viable option for businesses in very different fields.
In terms of loan amount, they are very flexible as well. Your business can lend as little as $300 or as much as $1 million depending on its needs.
The Affiliated Tribes of Northwest Indians
Providing funds and technical support to native American-owned businesses, The Affiliate Tribes of Northwest Indians finances certain business purchases like equipment and inventory.
Having loan terms of up to 10 years, the maximum loan amount is generally $125,000. However, this can still go up depending on your business credit history and credit rating.
The Miller Lite Tap the Future Business Plan Competition
Aiming to economically enable minority-owned businesses, Miller Lite sponsors an annual competition where the winner receives funds to expand operations and to implement what is indicated in the winning business plan.
The Rural Business Enterprise Grants (RBEG) Program
To encourage growth in rural areas, this grant finances the development of small businesses within its locality. The acquired funds can be used for construction, project planning, technical assistance, and many more.
Small Business Innovation Research (SBIR) Grants
While the current participation rate of minority-owned businesses is only at 21%, it is still recommended that you apply for minority business grants if your business is in this field.
If chosen, you can get as much as $100,000 for the first phase, and $750,000 for the second phase.
While minority-owned businesses can take advantage of preferential treatment in some institutions, the options are not limited to these. With a good credit score, you can find finance alternatives in traditional banks and other lenders. Find out what works best for your business, no matter if it caters to your minority group or not.
Jason is a Senior Author for SBL. He has been working with small business owners like you for the past ten years. He graduated with an MBA and began a career as an independent financial consultant for small businesses in his state.