Small Business Loans and Grants: A Guide for Minority-Owned Businesses

Small Business Loans and Grants: A Guide for Minority-Owned Businesses
While minority-owned businesses contribute to the economy -- it’s still difficult for them to access capital. Here's how to get started.
by Square Sep 09, 2019 — 6 min read
Small Business Loans and Grants: A Guide for Minority-Owned Businesses

Minority-owned businesses are expanding their reach across the country.

From 2007 to 2012, minority-owned firms grew at a rate three times faster than U.S. firms overall (5 million to 8.5 million), according to the Minority Business Development Agency. Employment at minority-owned firms also increased 33 percent to 7.7 million jobs overall during that time, per the same agency.

Despite this growth, minorities still represent only 29 percent of all U.S. firms, even though they are the fastest growing segment of the population. Only 11 percent of minority-owned business have paid employees, according to the Minority Business Development Agency. And in 2012, minority-owned firms’ receipts averaged $196,000, significantly lower than the $650,000 average receipt for non-minority-owned firms, according to the same report.

While minority-owned businesses contribute to the economy – it’s still difficult for them to access capital.

In this article, we’ll discuss:

What problems do minority business owners face when it comes to funding?

Accessing capital can be difficult for any small business owner. Nearly thirty percent of small businesses that apply for funding are denied or only partially funded, according to the Federal Reserve Banks’ 2016 Small Business Credit Survey, and forty-four percent don’t even apply – whether it’s for fear of denial or because they are debt averse.

But data shows that there’s an even greater lending gap amongst minority-owned firms.

Minority-owned businesses are three times more likely to be declined for a loan than non-minority firms, according to the Minority Business Development Agency. For those firms who do get approved, they often receive lower loan amounts overall. They are also likely to pay higher interest rates – 7.8 percent vs. 6.4 percent paid by non-minorities, as reported by the MBDA as well.

Where does this gap come from?

In some cases, it may be due to the same factors that affect all small business owners. Of business owners whose loan applications were denied or partially funded in the Fed’s Small Business Credit Survey, 31 percent had insufficient collateral, 29 percent had a low credit score, and 28 percent had insufficient credit history.

Yet despite these statistics, many minority-owned firms do receive funding, which is positive, because capital is important for growth. That additional funding is what may allow you to invest in new equipment, open a second location, and hire more employees.

So if you want to access new capital for your business, educate yourself about your options. Here we’ll review two of them – small business loans and private grants.

Small business loans for minorities

Used strategically, small business loans can help grow and run your business’s day-to-day work. (Here are five ways you might use a small business loan.)

You might apply for a traditional small business loan through a bank. But getting a small business loan from a traditional bank can be tough, especially if you’re just starting out.

For example, banks may request collateral, that is, physical property that can be claimed by a bank if a loan is not repaid and becomes delinquent. Startup business owners often don’t yet have equipment or real estate that they can use as collateral—and understandably may not be willing to use their personal property either. (Here are some other pain points of applying for a traditional small business loan.)

Luckily, traditional banks aren’t the only avenue for small business owners to secure funding.

For eligible Square sellers, Square Loans provides access to small business loans ranging from $500 – $100,000. Repayment is simple. Square automatically takes a percentage of your daily card sales to align with your cash flow. That means you’ll pay more when you’re busy and less if things slow down.

The Square Loans application process takes just a few clicks, and upon approval, funds can be transferred into a borrower’s bank account in as little as one business day.

Over the past two years, Square Capital has helped over 140,000 businesses grow with more than $2.1 billion in financing. Thirty-seven percent of loans through Square Capital went to minorities, according to a 2017 survey*. In comparison, just twenty-six percent of loans from traditional lenders served minority owned businesses according to the SBA’s Lending Statistics report.

Private grants for minorities

Unlike a loan, a grant is money that you don’t have to pay back. Sounds great, right? They are, but they are also much more restrictive than most other funding options available to small business owners. Most grants come with strict guidelines as to who qualifies for funds and what those funds can be spent on.

There are a number of grants out there for minority-owned businesses. We’ve highlighted a small group of private grants here (there are also government-backed grants that you can find out about through the SBA). But if you are interested in this route, make sure to do your own research. There may be industry or geographic-specific grants that you may qualify for that aren’t included here.

FedEx Opportunity Knocks Small Business Grant Contest

FedEx rewards $100,000 in grants to 10 small businesses ($25,000 to the first prize winner). To enter, they ask businesses to share how they got started, their philosophy and goals, and what a grant could help them accomplish. Part of the judging involves the general public voting for the final­ists via social media. This grant program isn’t limited to minority business owners.

The Miller Lite Tap the Future Business Plan Competition

Formerly known as the MillerCoors Urban Entrepreneur Series, this is an annual competition for minority business owners sponsored by Miller Lite. Designed to economically empower minority businesses, the program continues to invest in entrepreneurial dreams to empower urban communities.

National Association for the Self-Employed

This organization provides grants up to $4,000. To qualify you need to be a member, describe how you’ll use the funds and how it will support growth, and provide the appropriate documentation. (This non-profit is also a good resource if you’re self-employed.)

First Nations Development Institute Grant

The Native Arts Capacity Building Initiative gives up to six grants of $30,000 each to Native American institutions supporting arts and culture. The program is available to previously established initiatives that support Native American artists in Minnesota, North Dakota, South Dakota, and Wisconsin.

Tips for applying for a grant

Once you’ve found a grant or two that look interesting, here are a few tips to get you started on the application process:

  1. Read the synopsis and guidelines. Be sure that you are eligible before you put time into applying.
  2. Keep organized by putting together a list of all the documents you need to submit with your proposal.
  3. Grant applications can be technical, so don’t be afraid to ask for help – especially if you’ve never written a proposal before. Organizations like the SBA and SCORE can provide coaching for grant applications.
  4. Review, review, review. Have a few people look over your application to ensure that you’re including all the appropriate documents.

Resources for minority business owners

It can be helpful to have a little guidance. While not all of these organizations provide funding, they can be invaluable resources for small business owners as they look to grow.

There are a lot of organizations dedicated to helping minorities succeed as business owners and entrepreneurs. We’ve put together a handful that we think are useful, but it’s not exclusive. If you want an organization or group dedicated to your particular industry or focused in your city, do a little searching – you’ll probably find it.

The Minority Business Development Agency

A federally-backed government agency, the Minority Business Development Agency addresses the unique challenges faced by minorities in the United States. The organization has local locations throughout the U.S. to help business owners with everything from lending to networking.

Small Business Development Center

These SBA sponsored centers are designed to help entrepreneurs with business development and access to capital. There are almost 100 centers across the country. Some lend money directly, while others just help you find grants and loans that you may be eligible for.

8(a) Business Development

A sector of the SBA, the 8(a) business assistance program offers assistance to firms owned and controlled at least 51 percent by economically disadvantaged individuals, and includes development and transition assistance. Firms that apply and are accepted will be a part of the program for nine years.


This nonprofit is a the biggest network of volunteer business mentors in the U.S. An SBA partner, it provides both free business counseling. It also provides low-cost seminars and online training.

Getting funding doesn’t have to be a headache. With improved access to capital, through online lending sources like Square Capital, grants, and sponsorships, minorities can knock their business goals out of the park.

This online survey of 7,000 Square sellers who have accepted loans through Square Capital was commissioned by Square Capital and conducted by Qualtrics. The survey has an overall margin of error of 1–2% at 95% confidence interval. Participation in the survey was optional and all data was self-reported by study participants. Responses and insights gathered were shared with Square Capital in an aggregated and anonymous manner. Respondents participated in the study between January 9–11, 2017.

Square Capital, LLC and Square Financial Services, Inc. are both wholly owned subsidiaries of Square, Inc. Square Capital, LLC d/b/a Square Capital of California, LLC in FL, GA, MT, and NY. All loans are issued by either Celtic Bank or Square Financial Services, Inc. Square Financial Services, Inc. and Celtic Bank are both Utah-Chartered Industrial Banks. Members FDIC, located in Salt Lake City, UT. The bank issuing your loan will be identified in your loan agreement. The individual authorized to act on behalf of the business must be a U.S. citizen or permanent resident and at least 18 years old. Loan eligibility is not guaranteed. All loans are subject to approval.

The Bottom Line is brought to you by a global team of collaborators who believe that anyone should be able to participate and thrive in the economy.


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