If you want to see that statistic jump higher, you’re not alone. There’s a number of organizations offering grants and specialized small business loans designed to help minority- and women-led businesses thrive.
But even then, financing can be difficult.
AS A MINORITY BUSINESS OWNER, FUNDING CAN OFTEN BE ONE OF THE BIGGEST HURDLES WE FACE. WHAT I’VE COME TO REALIZE IS THAT MANY PEOPLE WANT TO HELP YOU, BUT YOU HAVE TO BE WILLING TO ASK.
Grants can be competitive, and it can be difficult to obtain any kind of business loan without an established business history or good credit.
This is where personal loans help. Personal loans can play an important part in developing your business both during the entrepreneur phase and after your business has found some success.
WHEN PREPARING YOUR BUSINESS PLAN, THINK ABOUT IT AS A MOVIE. START FROM WHERE YOU WANT IT TO END AND WORK YOUR WAY UP.
Starting a business as a minority business owner
Combining personal loans with grants and specialty lenders
Once you have a great idea and a solid business plan, it’s time to finance. And the best place to start is with organizations that offer specialized loans and grants for minority-business owners.
LOOK INTO AVAILABLE OPTIONS FOR GRANTS, AND CONSIDER YOUR LOCATION, INDUSTRY BACKGROUND, AND BUSINESS REVENUE WHEN DETERMINING WHAT YOU QUALIFY FOR.
These organizations typically require businesses to be under at least 51% direct control by minority leadership.
Grants are essentially free money — they don’t need to be paid back. And often organizations will offer specialized grants for minority and women entrepreneurs.
But grants can also be incredibly competitive, and restrictive when it comes to spending options. You may receive less money from a grant than you would from either a business or personal loan.
Specialized loans are another option. These lenders streamline the application process, offering sizable loans with more relaxed standards and less competition. You may not need an extensive professional history, or business credit, and your personal net worth won’t matter as much as the strength of your business plan.
Specialty loans are still loans, and borrowers still must qualify. Some loans may come with criteria that borrowers just can’t meet.
CHOP YOUR BIG PLAN INTO A BUNCH OF SMALLER PARTS. MAKE A LIST OF THESE SMALLER PARTS AND EVERY DAY WORK TOWARDS CHECKING A FEW MORE THINGS OFF THE LIST.
For example, Small Business Administration (SBA) Community Advantage Loans pair women and minority entrepreneurs with over 100 investors to find ideal financing. Good credit is often required to qualify, and businesses must be part of the SBA community.
Membership to the SBA requires that businesses demonstrate “potential for success”, which often translates into two years of operation prior to application. So if your business is just getting off the ground, you might not qualify for a loan, even though it’s designed for minority business owners.
Personal loans are less competitive, funded quickly, and come without spending restrictions. Lenders consider your personal financial history first, and if they choose to lend to you, you’ll receive funds in a few days to a week.
APPLY FOR GRANTS AND AWARDS. GRANTS PROVIDE THE FUNDING. AND BOTH GRANTS AND AWARDS CAN BE LEVERAGED TO GAIN MORE PUBLICITY, WHICH LEADS TO OTHER OPPORTUNITIES.
Apply for grants and specialty loans first. A personal loan can help you cover day-to-day operations as you begin to put together your business.
But personal loans can’t fund an entire business. That’s not what they’re built to do. A personal loan can cover a handful of startup expenses, but as your business begins to grow, you’ll need more powerful tools designed to help you finance your day-to-day, and win contracts.
Using credit cards to finance a startup as a minority business owner
There are two strategies for using credit cards to finance your startup. Use a card as needed for operational expenses, or take out a cash advance.
Both are bad ideas.
Credit cards do offer revolving credit, but they should always be paid off in full every month. Otherwise, interest rates begin in the double digits. If you carry your debt over a month, you’ll be paying off the existing debt as well as any new charges you put on the card. That’s a quick way to rack up debt.
GET COMFORTABLE WITH BASIC FINANCIAL NUMBERS AND MAKE SURE YOU HAVE SAVINGS. THE BIGGEST REASON PEOPLE FAIL IS NOT BECAUSE THEY DON’T HAVE THE PASSION OR THE KNOW-HOW TO MAKE AN IMPACT FOR THEIR CUSTOMERS, IT’S BECAUSE THEY DIDN’T MANAGER THEIR #1 RESOURCE PROPERLY.
If you have to finance your business independent, personal loans offer more structure. You’ll receive fixed monthly payments and interest rates, and paying off your loan will help you build credit.
Growing your business as a minority business owner
Combining personal loans with business loans
Once your business has begun to earn some capital, it’s time to consider a business loan. But even then, there are still some virtues to finding funding via personal loans.
Business loans help organizations establish a good financial reputation, resulting in good trade credit.
BUILD A BRAND AND PROVIDE EXCELLENT SERVICE. YOU CAN ESTABLISH A LOGO AND A WEB PRESENCE. YOU CAN ALSO PROVIDE EXCELLENT CUSTOMER SERVICE AND ASK FOR REVIEWS FROM THOSE CUSTOMERS THAT YOU SERVE. WORD OF MOUTH CAN MAKE OR BREAK A BUSINESS.
Trade credit is credit that is extended to a business by a supplier with a “deliver now, pay later” mentality. Trade credit, it allows businesses to get the supplies they need without having to pay cash at delivery. And it’s an essential step in taking your business forward.
On the other hand, business loans can be difficult to obtain. Business loan lenders like to consider your personal credit, professional history, business plan, and your business’ financial reputation. Business loans also tend to be secured.
Because of the strict criteria, business loans can be much more difficult to obtain for minorities. And according to Senator Kirsten Gillibrand, less than 5% of conventional business loans go to women.
YOUR BUSINESS HAS TO SOLVE A PROBLEM, SO FIGURE OUT WHAT PROBLEM YOUR BUSINESS SOLVES AND CREATE THE BEST SOLUTION THAT WILL BRING YOUR BUSINESS CONSISTENT INCOME.
Personal lenders consider your personal credit score and financial history. It can be much easier to take out a personal loan, and they’re often unsecured.
Still, it’s your credit score at risk should you fail to pay back the loan, and interest rates are often higher than many business loans.
If you have poor to bad credit, consider using a personal loan for debt consolidation before starting your business.
Combining personal loans with certifications
Once your business is established, there are certifications and programs specific to minority and women-led organizations that can help make finding and securing contracts easier.
But like grants, certifications can come with strict criteria, as well as application costs you might not be able to afford right now.
The National Minority Supplier Development Council Certification helps minority-led businesses connect with private-sector buyers. (Their database includes some heavy hitters, such as IBM and Microsoft.) But certification costs can range from $350 to $1,200, depending on state and region.
TAKE ADVANTAGE OF BEING DISADVANTAGED. THERE ARE A LOT OF OPPORTUNITIES AND FUNDING AVAILAIBLE FOR DISADVANTAGED BUSINESSES THAT ARE NOT BEING TAPPED INTO.
The SBA 8(a) Business Development Program helps minority-led organizations win contracts in the public sector. And in some instances, organizations may not even have to compete. But again, organizations must be SBA members. Membership often requires two years in business, meaning that fledgling companies may not qualify.
Personal loans can help cover some certification costs. Or, when combined with specialized grants and business loans, they can help your company grow until you meet requirements.
BE AFRAID AND DO IT ANYWAY — FEAR IS NORMAL, BUT IT IS HOW YOU WORK THROUGH IT THAT YOU BECOME SUCCESSFUL IN MOVING FORWARD WITH YOUR BUSINESS.