February marks Black History Month. This is a month where we celebrate black culture, commemorate the contributions of black leaders, thinkers, and various figures throughout history, and recognize how critical black stories are to the American experience. Part of the story, an essential factor, begins with black entrepreneurs. Black-owned businesses make up over 40 billion in annual payroll. There are nearly 150,000 black or African-American-owned businesses in the US. The key is to continue supporting these businesses and ensuring a long and prosperous life cycle.
As a black-owned business, ensuring that you have the funds needed for either expansion projects or keeping your business afloat during more difficult times is essential. So, where do you go to get those funds? How do you put yourself in the best position possible for qualifying for loans geared to help black-owned businesses? This article provides information on procuring a business loan for your small company.
Types of Loans Available for Minority Owned Businesses
From short-term loans to lines of credit, there are options out there that can help you not only sustain your business but grow it. Below are a few more common business loan programs available to minority-owned businesses.
1. SBA Loans
The small business administration was created to help foster small business growth. Their loan programs have highly favorable interest rates and terms. They can, however, sometimes be more challenging to qualify for. To get an SBA loan for your black-owned business, you have first to meet the eligibility criteria established by the SBA. This includes being a for-profit business, operating within an eligible industry, being located within the US, and demonstrating a need for loan funds. You must also be a small business defined by the SBA in terms of employee numbers and annual receipts. Usually, those businesses that get SBA loans have first tried to find some alternative type of financing and have consequently been turned down.
To have the best chance of being approved for an SBA loan:
- Make sure your credit score is where it needs to be.
- Do check your credit report, look for inaccuracies, and start to pay down some of your debt.
- Think about creating a business plan if you don’t already have one.
This shows that you have established goals and a means for achieving those goals. This also lends greater credibility to your business model.
2. Business Line of Credit
A brilliant option for many black-owned businesses is to take out a line of credit. Numerous alternative and online lenders are invested in funding small US businesses, and they do so quickly. Some companies get funding in as little as two days. With a line of credit, you only pay interest on the amount that you take out. And once you do pay that amount back, it is again available for you to use. This is known as a revolving line of credit. Lines of credit can be easier to get versus some other loan types.
Again though, you want to put yourself in the best position possible by improving your credit score, making sure your financials are in order and up-to-date, and having all documents ready to go as soon as they are requested.
3. Term Loans
As far as loans available for black-owned businesses, term loans also tend to be a trendy option. With a short-term or a long-term loan, you get the money you need in one lump sum. You pay it back according to a fixed schedule and a fixed monthly or potentially weekly amount. In some cases, depending on credit score and other factors, you may need to provide collateral or a personal guarantee for this type of loan. A personal guarantee means that if the company defaults on the loan for whatever reason, you are personally responsible as the business owner to pay back the funds. This could put your assets at risk, so make sure you can comfortably pay back any amount that you do borrow.
The Small Business Loan Process
The process for getting a loan is relatively simple, especially if you are working with an alternative or online lender. You will first research to find the lending company that meets your needs and has programs suited to your business. Generally, you’ll fill out an online application, after which someone will be in contact with you to go over the next steps and to review the documentation that will be needed to process your loan.
Being proactive here and ensuring that you have your paperwork and information ready ahead of time can help the process. They will ask for such things as tax returns, financial statements to include balance sheets and cash flow statements, any business leases, articles of incorporation if applicable, bank statements, along with a business plan if you do have one. The more information you can provide, the more comprehensive a picture you can paint of your black-owned business, the better your chances of loan approval.
If you work with a traditional bank for your loan, the process can take weeks, sometimes months. Underwriting can seem nerve-racking given the amount of time they take to review your file. Whereas, if you work with an online lender, a decision is usually reached within a day, even sooner sometimes. And the funds go into your account within just a couple of days. You can then use these funds for virtually anything related to your business; from expanding your office space to hiring more employees to increase cash flow, the money is there for you.
First Union Lending Wants to Help
If you are a black-owned business in the US and need additional working capital for whatever reason, we have the resources to help. We offer short-term loans, SBA loans, and lines of credit, among other funding options. And most of our clients receive the cash in their accounts within 2 to 3 days. We do work that quickly. Call today, and let’s get started together.