As others have noted, African Americans face special constraints when seeking business financing, even with all of the assistance created post-George Floyd. We have described this new assistance in Thriving As a Minority-Owned Business in Corporate America: Building a Pathway to Success for Minority Entrepreneurs. These are the simple facts: "the typical Black entrepreneur starts a business with $35,000 in capital — a third of the startup capital for the typical white entrepreneur — and other entrepreneurs of color face similar challenges." This is the direct result of a historical legacy of racism and discrimination, a legacy most are loath to acknowledge. In point of fact, according to the "State of Minority Business, March 2022" report by Creative Investment Research, there has been less understanding of the core issues small Black-owned firms face in gaining funding to start or grow. We know you still need financing, so the question becomes: What Now?
The bottom line is this: most mainstream financial institutions are not able to provide financing to African Americans at the same level and on the same terms that they provide business financing to members of other groups. This is clear.
Given this, we suggest you look at the following sources of business capital: crowdfunding small amounts to start. Other options include credit cards, credit unions and finally, and as a last option, banks. We provide more detail below.
We outline the sources and tactics we recommend below.
Request a callBlack businesses face the most difficult financing road of any groups operating in the US. You can still achieve all your goals with the right kind of help.
Donations-based crowdfunding allows you to raise small ($1,000 to $10,000) amounts of business capital. Cost of financing is low. Effort required to be successful is high, however. You will, however, have to give the details concerning your business plan to get to any significant financing via equity-based crowdfunding.For more, see The JOBS Act: Crowdfunding Guide to Small Businesses and Startups 2nd Edition.
Using credit cards to finance a business is a tried and true way to get started "if you need financing of less than $50,000 and can’t qualify for a bank loan." Credit cards may earn you "rewards on business-related purchases and typically carry an annual percentage rate (APR) of 15% to 35%."
"Credit union business loans and credit union short-term loans work just like business loans from a bank. It’s generally no easier to get business loans from a credit union than a bank." For African Americans, credit unions are marginally better. Still, they are not THAT much better than applying to a bank.
"Large banks now approve a quarter of small business loan applications, and regional and community banks approve nearly one half of small business loan applications." Of course, you still face sharply higher rejection rates if you are Black, so banks loans are the last resort. (And, no, going to a Black bank will not improve your chances.)
All Black Business Financing Options are not created equal, the ones below have become great options for Black people to use.
Eligibility factors vary depending upon the type of business financing you are looking for, but there are a few factors which you should keep in mind. If you are going to a financial institution, a personal credit score of at least 650. According to one source, "the average FICO score in America is 728 for a homebuyer" and the average Black homebuyer score is 677.
For most online small business loans, you ned to be in business for at least a year.
$50,000 to $150,000
You will need to specify how you plan to use the money. Some financing types limit how you can spend the approved funds: equipment financing loans require you use the funds to purchase equipment.
If you have a question about Black business lending, see the FAQ page.
There are an increasing number of "hard-money" lenders focusing on the Black community. These are private sources of money, usually tied to real estate funds, including those who profit by foreclosing on Black communities. This money tends to be very expensive. We suggest evaluating these sources carefully. They may work for you, but it is a case-by-case determination.
Take a look at our page on online lenders. Some of these options are good, some are not. As with other options, you will need to evaluate these programs on a case-by-case basis.
Other financing options and resources including grants and awards. We would not count on these. The demand for these resources far outstrips the supply, so your chances are minimal.
Some of these are "Shark Tank" like competitions.
See minoritybank.com, creativeinvest.com, diversityfund.net, moneytoday.info and hr41.info
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