More and more minority businesses are starting in the United States. The number has increased to almost 11 million in minority-owned businesses with employees over 6.3 million and $1.8 trillion in annual revenue.
Unluckily, the same success rate is unreflective in the Native American business industry. About 1.6% percent of the U.S population reflects the Native Americans and they collectively own about 300,000 businesses and they keep growing. Even this increased number has not resulted in increased revenues and number of employees.
With quick access to affordable business financing options, Native American-owned businesses can scale their businesses with more revenues and employment opportunities. There are government grants available for Native American-owned businesses, but these are highly competitive. A small business loan is a more practical business funding option that can help them start a new business on non-tribal lands.
Debt-Free Grants Opportunities
Debt-free business financing options are important to a business’s growth. With less debt, businesses can have more resources to focus on growth rather than repay a small business loan.
The key benefit of a debt-free grant is that you don’t have to pay it back, whereas a loan must be paid back with interest. Many nonprofits, federal government agencies, and private institutions offer Native American business grants.
Here is a list of grant opportunities for Native American-owned businesses:
- Rural Enterprise Grant Program
- First Nations Development Institute
- US. Department of Commerce
- Administration for Native Americans
- US. Department of the Interior
There are also crowdfunding sites like Kickstarter, Crowdrise, or Indiegogo where you can grow money for your small business. You can use a compelling story as an opportunity to share your business inspirations, goals and cultural root to the public.
Small Business Loans for Native American-owned Businesses
If you’re not able to qualify for a grant, a small business loan is your next best business financing option. Before you apply for a small business loan, understanding the metrics like interest rates, loan usage, and the repayment schedule is important since all these metrics can affect your small business. Here is a list of the best Native American small business loans for 2019:
- Community Development Financial Institution (CDFI) Loans
CDFIs are private nonprofit financial institutions that provide business funding, investment, training, and mentorship to small businesses in economically deprived communities. U S. Treasury Department supervises these CDFIS and some of them are certified as “Native CDFIs,” Half of the CDFI’s activities are to serve Native Americans, Alaska Natives, and Native Hawaiians. The main purpose of these CDFIs is to provide these distressed communities with an alternative to traditional lending.
Native American-owned businesses find it hard to secure funding via mainstream banks due to bad credit score, lack of adequate financial resources, and seclusion from thriving communities. CDFIs provide short and medium-term business loans with terms up to five years at an interest rate ranging from 6% to 36%. The lower end rates are what a traditional lender would charge to businesses.
- S. Department of the Interior Indian Loan Guarantee Program
The U.S. Department of the Interior (DOI) provides business funding to Native American-owned businesses via an Indian Loan Guarantee Program. These loan programs provide long-term loans at a lower interest rate to federally recognized American Indian and Alaska Native tribes and individuals enrolled in such tribes. In order to qualify, the business owner must have a 51% share in ownership, with a 20% down payment and the product/service must assist the economy of the tribal area or the reservation.
You can use the loan amount for almost any purpose including working capital, business acquisition or upgrades, and refinancing. Corporations with multiple owners can access higher loan amounts and $500,000 for solopreneurs with the government guaranteeing up to 90% of the loan amount.
- S. Department of Agriculture Business & Industry Loan Guarantee
The U.S. Department of Agriculture (USDA) provides funding to Native American-owned businesses via the Business & Industry Loan Guarantee Program. These small business loans are available in any rural community with easy eligibility criteria. In order to qualify, the business should be located in a rural area with less than 50,000 inhabitants and some collateral to provide a cushion for the lender’s interest in the loan.
The USDA guaranteed loans with cash up to $25 million, and terms up to 30 years depending on the loan usage. The interest rates are typically lower than market to assist rural businesses to get started.
- S. Department of Energy Loan Guarantee
The U.S. Department of Energy (DOE) also provides funding to Native American entrepreneurs via a Tribal Energy Loan Guarantee Program that primarily focuses on tribal energy development projects. All energy-related projects like fossil energy production and mining, renewable energy, transmission infrastructure, and energy storage are eligible to apply for funding.
You can contact the U.S. Department of Energy, which will connect you with the participating lender to get started.
- Small Business Administration (SBA) Loans for Native Americans
The U.S. Small Business Administration (SBA) provides the most reputable government loans guarantee program. SBA loans are available to any type of small business, and among many, one of the agency’s goals is to help businesses in economically deprived communities. According to their survey, nearly one-third of SBA loans had been funded to minority-owned businesses. In order to qualify, you need to have a strong personal credit score of 650+ with a 10-20% down payment and at least 2+ years of time in business.
SBA loans offer lower interest rates and long repayment terms of 10-20 years since they are guaranteed by the government. The SBA 7(a) loan is the most popular loan program that offers cash up to $5 million for a variety of purposes, such as working capital, equipment purchases, business acquisition, construction, and refinancing.
A microloan is another business funding option for minority-owned businesses, which provide a small amount of seed capital under $50,000 to get started with.
The SBA also has a microloan program, as do many private lenders. These are community organizations whose goal is to help the underserved community to thrive. The eligibility criteria is simple, you just need to have a decent credit score of 600+ as well as proof of your ability to repay the monthly payments. Even startup businesses can qualify for microloans and there’s no down payment condition.
Microloans have a high-interest rate range of 10% to 16% based on the borrower’s creditworthiness as compared to SBA loan rates or DOI loan rates. Moreover, you can use these loans for almost any purpose including expansion, inventory, supplies, hiring, and marketing.
- Short-Term Financing
If you need quick business funding with a low credit score, short-term loans can be your savior. In order to qualify, you need to be in business for several months and have a revenue of $4,000 each month, even with a low credit score. There is no detailed paperwork involved and the process is simply making it a perfect small business loan solution for Native American businesses, especially if you’ve been rejected by the banks previously.
The repayment terms are between three to 18 months with a daily or weekly repayment schedule. Short-term loans are perfect for short-term needs like purchase inventory or supplies, payroll, and other short-term needs.
- Business Credit Cards
Business credit cards are another quick and expedient funding solution like short-term loans. You can also apply for a business credit card even if you don’t have a business set up and running. Most business types like home-based businesses, freelancers, and consultants are eligible for business credit cards. The only criteria is to show some proof of business via a business license copy or a recent tax return.
The best thing about business credit cards is that they have higher limits and better rewards points as compared to consumer credit cards. With an excellent credit score, you can have a business credit limit of $50,000 or more.
Tips to Strengthen Your Small Business Loan Application
Irrespective of these small business loans for Native Americans, your goal should be to strengthen your loan application to the greater extent possible. With a stronger business profile and complete application, you can have solid chances of getting quick approval for small business loans. Here are few tips to help you strengthen your small business loan application:
- Create a strategic business plan if you want to apply for SBA loans, DOI loans, and bank loans. Consider it an essential element of your loan application even if it’s not required by a lender. A business plan manifests how realistic you are about revenue, profit, expense projections, and exactly how much you need to borrow.
- Keep trying to improve your credit score. The better your credit score is, the quicker you will be approved for a loan. It also helps in getting you more credit range along with lower interest rates.
- If you have an upward trajectory in revenue, lenders are more willing to lend you money. Even if you’re a startup, your focus should be on expanding your products/services and on getting paying customers.
- The more sustainable your business success is with positive financials in the long term, the more likely you will be qualified for a small business loan.
Native American Businesses Can Thrive Today!
With so many resources and business funding options available today, now Native American entrepreneurs can thrive in the competitive economy. As an Native American-owned business owner, you can start with debt-free options like crowdfunding and government Native American business grants. You can also contact your local CDFI to check for financial resources or ask them to connect you with a tribal lender. And if nothing works your way, there are still numerous small business loan options available from government-guaranteed small business loans to business credit cards.
Running a business is challenging, especially for Native Americans business owners, but if you work intelligently and search for resources at the right place, you will find a great deal for sure.
Merchant Advisors is an alternative lender helping small businesses with the aim to assist small businesses owners with the financial tools to thrive and improve the small business community. For this, Merchant Advisors provides a total payments solution including ACH processing, Credit Card Processing and alternative small business financing via our business cash advance solution. Whether you’re just starting in the neighborhood, or on tribal land, Merchant Advisors can help small business owners conquer the challenges facing Native American-owned businesses. Contact us today!