Why Minorities Have So Much Trouble Accessing Small Business Loans

One of the many long-standing frustrations for minorities is that their vital role in the U.S. economy hasn't made it much easier for them to obtain the means for success. Between 2007 and 2017, minority-owned small businesses grew by 79%, about 10 times faster than the overall growth rate for U.S. small businesses during the same time frame. This puts the number of minority-owned businesses at approximately 11.1 million, which isn’t much of a surprise, considering the U.S. is expected to become a minority-majority country sometime between 2040 and 2050.

But, despite leading a significant portion of the nation's businesses, minority-owned firms are still having a much harder time accessing small business loans than their white counterparts. Minority-owned firms are much less likely to be approved for small business loans than white-owned firms. And, even if they do get approved, minority-owned firms are more likely to receive lower amounts and higher interest rates. According to findings from the U.S. Department of Commerce Minority Business Development Agency, these discrepancies have made minority business owners more likely to not apply for small business loans, usually out of fear of rejection.

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Here are a few reasons why it’s particularly difficult for minority business owners to obtain small business funding:

1. Lower Net Worth

It seems that the most common reason minority-owned firms are

rejected for small business loans is a lower net worth and/or lack of assets. Wealth levels for Latinos and African-Americans are reportedly 11 to 16 times lower than for whites. Data recorded in 2016 found that white business owners start their businesses with an average of $106,720 in working capital compared to African-American-owned businesses, which are started with an average of just $35,205. Banks are traditionally biased against applicants with less money to spare, partially because such applicants probably cannot offer collateral. The lower net worth of minority business owners suggests that they are less likely to own homes or other expensive assets the bank can sell if the applicant cannot pay off the debt. A lack of collateral or higher net worth often makes the bank so worried about being paid back that it is only willing to distribute small business loans that must be paid back as quickly as possible and are therefore insufficient for fostering significant growth.

2. Not The Most Optimal Location

Another major factor in the approval rating of small business loans for minorities is the location of the business in question. A great deal of minority-owned businesses are located in poorer, urbanized, communities. Research from the Small Business Administration suggests that the location of a business plays a bigger role in the approval of a loan than the ethnicity of the business owner. Poorer communities need small businesses to bolster their economies, but big banks do not typically craft their business funding programs with long-term goals in mind.

3. Poor Or Little Credit History

The average minority small business owner has a credit score of

about 707 -- 15 points lower than the average small business owner in the U.S. A nearly perfect credit score is basically mandatory for the most advantageous bank loans, even though there are numerous plausible explanations as to why an otherwise responsible and dedicated business owner would have poor or very little credit history. Still, credit score is arguably just as important as the business’s performance record when it comes to securing a bank loan.

Thankfully in times like this, private funding companies have gained traction by mining data and looking not only at credit but also looking at time in business, industry, location, cash flow, both daily and monthly ending bank balances in the business accounts, number of staff, time left on lease, etc. By looking at more than just credit, these models have allowed minority business owners to access capital.

Exploring Other Options

It’s clear that banks might not be the best option for minority-owned businesses looking for substantial funding. Fortunately, the business lending industry has evolved dramatically over the past decade or so, and small business loans are no longer strictly limited to wealthy white men with flawless credit.

Several alternative business financing companies, for example, do not discriminate based on credit history, net worth or the business’s size. Most of their loans are 100% unsecured, meaning they do not require collateral or a personal guarantee. They lend to virtually every industry, including those that are stereotyped as risky, like retail or hospitality or smaller businesses like Laundromats or convenience stores.

Some alternative lenders even offer programs that are tailored for businesses with less cash on hand and lack the stringent, non-negotiable guidelines of traditional bank loans. These funding companies have allowed business owners to build up their track record and help to fix their perceived problems so that they may one day qualify for the traditional financing they desire.

Two Businesses, One Goal

While almost all alternative business lenders can boast speedy

approvals and loose qualifications, only a few can offer what is arguably the biggest advantage of working with these companies: small business loans that put the borrower, not the lender, first.

Bank loans appear to have been designed with the intent to draw a profit, whereas certain alternative business lenders are more focused on creating loans that are easy to pay off and capable of covering crucial investments. They are aware that their success depends on the success of their clients, so they focus on providing the tools to help them grow over time. Minority business owners would be wise to explore this option if they’ve been rejected by banks and don’t feel like endangering the health of their businesses with loans that might do more harm than good.

POST WRITTEN BY

Jared Weitz

Founder & CEO of United Capital Source LLC 

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Small Business Marketing 101

Branding, services, promotions, products, pricing, prints, blogs, advertising, research and social media -- all of this is marketing. With all the marketing options out there, it can be difficult for small businesses to know what to do. Marketing is a concentrated effort to do push your brand across a variety of platforms and hope that enough makes it through to your customer. Customers need to hear your message several times, so brand, brand, brand! Here are some simple steps to help you market your small business:

1. Get organized.

Getting an organized plan is the first step in any marketing effort.

Make one. Start with brainstorming, create themes and transfer action items to a calendar or to-do list. Start small, and try to get a good ROI for everything you do. Create an elevator pitch: What can you tell people about your business, products and services in 30 seconds or less that keeps them interested and wanting more? Get customer input early -- if you are opening a storefront or restaurant, try hosting a soft opening or invitation-only event to get your kinks worked out and your mishaps and mistakes out of the way. Whatever you do, make a good first impression.

Forbes Business Development Council is an invitation-only community for sales and biz dev executives. Do I qualify?

2. Get a website.

In today’s technology-based world, the first thing a potential customer or employee does is Google your business. You need a website to show you’re real and to offer information about your business to potential customers. Make sure your website is mobile-friendly and be sure to ask for search engine optimization. Use Google Analytics to track the traffic to your website, but be leery of people who promise you top positions on search engines. While there are lots of things that can be done to increase your ranking on various search engines, unless the developer works for Google, I would be leery of a promise to get you to the top. Remember that you get what you pay for. There are a ton of do it yourself website services, but depending on the features you need on your site, some things are better left to the experts.

3. Leverage social media.

Let’s face it, everyone is on social media these days, and the

majority of traffic still occurs on Facebook. If you are not using Facebook for your business, create a page today. You are leaving an opportunity on the table if you don’t. There has been a shift the past few years with more and more retirees joining the social media world. I guess they realize that if they want to keep up with their kids, grandkids, friends and neighbors, they better get with the program. In fact, retirees are often my best brand ambassadors and help promote our events.

4. Set up and claim your business online.

Whether you get on board or not, information about your business is and will be on the internet. Wouldn’t you rather proactively control what people read or see about your business when they Google it? Do a search on different browsers to see what information you see about your company and then claim or create a listing for your business.

5. Use Google AdWords.

Try utilizing Google AdWords to specifically target the types of

products or services you offer. Remember to focus on the quality of a few keywords instead of choosing too many. AdWords are great for targeting specific geographic locations and give you the ability to control your budget with flexible pricing options.

6. Create local awareness and establish a network.

Join chambers, business associations, community groups, etc. Find ways to get involved. Networking is a great way to capture business leads as long as you don’t come on too strong. It allows you to meet new contacts and create more brand awareness and new referrals. Sponsor sporting events, nonprofit events or anything that is for a good cause. Get your name out there while also being a good community steward. Give away SWAG (promotional items with your business name, logo and contact info on them). T-shirts are a great example of free walking advertisements for your business.

7. Offer coupons or free products/services.

Create loyalty early on. A happy customer will come back and will

tell their friends about you. Create a buzz with brand ambassadors. These can be family and friends who help promote your products or services.

8. Advertise.

If you build it, they still may not come. You

must get out there and tell people who you are, why your product or service is different from the competition and how to find you. Advertising is not a one-size fits all solution. Find what works for you, but whatever you do, you must advertise.

More than anything, focus on consistent, repetitive branding. Many marketing professionals believe in the “rule of seven," which means people need to hear or see your message at least seven times before taking any action. In today’s world of constant connectivity, you must make sure you’re seen and heard. The most common reason that people do not buy your product is that they do not know about it yet.

POST WRITTEN BY

Elizabeth Pritchett

Sales & Marketing Director at Center Point Business Solutions.

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Frontier helps small business grow

Frontier Business, the business services side of Frontier Communications, has a significant growth opportunity in 2018, by helping small- and mid-sized businesses grow using their advanced cloud-based communications services. Let’s face it, the SMB market is looking for help, so they can lead. They must transform the way they communicate, conduct business, gain a competitive advantage and modernize their communications services.

Larger companies have a team handling this, but smaller companies struggle. That’s where Frontier has positioned themselves. As an advisor and vendor of cloud-based UC and VoIP services. They first understand each of their business customer’s needs, then they provide the services each needs.

That’s where Frontier has strategically placed itself. They are a cloud based, VoIP and Unified Communication provider. UC is one of the hottest new areas for communications and that will continue for years to come.

Frontier Business SMB cloud-based unified communications services

There are two kinds of providers. One that simply sells communications services and the other also acts as an advisor, helping companies reconfigure and transform and grow with all the new technologies.

Business customers are looking for a competitive advantage in their industry. If their choice is to lead or to follow, small businesses want to lead as a competitive advantage. However, they also need help sorting through the increasing choices and confusing strategic decisions.

SMB customers all over the country are all looking for new ways to streamline and modernize their communications. There are many different reasons, but the bottom line is, new technology continues to transform and re-invent the way business gets done. Early adopters often gain a competitive advantage.

Early adopters gain a competitive advantage

Consider how business technology has changed over time. We remember plain old telephone service or POTS. We remember early fax machines, the introduction of email, audio and video conferencing and web services. In the early days of the 1990’s, new companies like AOL, CompuServe and Prodigy transformed the way we communicated, and the way business was done.

We remember the first wireless phones that had to be installed in the dashboard in the 1980’s. How Motorola led the handset business until the mid 1990’s. Then they missed an industry shift and suddenly Nokia and Blackberry were in the number one spot for the next decade. Then a decade later Apple iPhone and Google Android were created and transformed the space once again.

Each shift created a new set of winners and losers. These are the types of seismic shifts that transform every industry. Your industry is facing its own earthquake. Its own transformation. Who will the new leaders be in your space going forward?

UC, cloud-based communications services lead going forward

The same kind of opportunity exists today in your space. Small and mid-size companies can rapidly grow and if they do it right, they can lead. Every new industry was started by a small company and founder with a big idea.

You remember how Jeff Bezos of Amazon.com started, right? A cheap desk in a tiny office with a paper sign saying Amazon.com taped to the wall over his desk. Today he is the richest person in the United States and countless cities are vying for the second Amazon HQ. Same with Apple, Microsoft, Google, Facebook and so many others.

With the economy growing so rapidly, with entrepreneurs challenging and creating new opportunities, with small and mid-size businesses leading the way, the future is all about growth and transformation. New companies will take advantage of cloud-based communications services. Existing companies will transform to cloud based services as well.

Any way you slice it, cloud-based Unified Communications services is the future for businesses of every size. Companies that embrace UC have a better chance to grow and transform not only their company, but their entire industry just like the Apple iPhone and Google Android did a decade ago.

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Best Small Business Loans For Women In 2018

Women-owned businesses (companies at least 51 percent female-owned) have grown exponentially to account for nearly four-in-ten of U.S. firms over the past two decades. As of January 2017, there are an estimated 11.6 million women-owned businesses in America that employ nearly 9 million and generate more than $1.7 trillion, according to the 2017 State of women Owned Business commissioned by American Express. Further, revenues among women-owned businesses generating more than $1 million annually grew 104% since 1997, while the number of women-owned businesses generating between $500,000 and $999,999 grew by 88 percent, also according to the American Express report. For the past four years, Biz2Credit has conducted an annual study of companies owned by women. The 2017 report found that female entrepreneurs lagged behind their male counterparts in terms of average annual revenues ($210,000 vs. $363,414). Furthermore, earnings for women-owned companies were reported at $117,064, a 61 percent increase from 2015 to 2016, while male-owned firms averaged $195,574. The difference was a $78,510 gender gap. Despite these figures, the percentage of women applying for loans increased from 27 percent in 2015 to 29 percent in 2016. Borrowers who previously refrained from borrowing money for expansion or capital improvements re-entered the credit markets. Because the economy has been relatively strong and because interest rates are still quite low, women entrepreneurs have shown a willingness to take on more risk by borrowing money to grow their businesses.

Where are women turning for funding?

Four of the best forms of small business financing for women are:

Term loans

Approvals of traditional term loans (borrowing an amount of money that is paid off with interest during a specific amount of time) are on the rise. According to the latest Biz2Credit Small Business Lending Index for December 2017, big banks are currently approving more than a quarter of funding requests that come from small companies. Meanwhile, regional and community and regional banks are granting almost half (49 percent) of the applications they receive.

SBA Loans

The Small Business Administration (SBA) has been dedicated to

advancing entrepreneurship since the Eisenhower Administration established the agency during the 1950s. Significantly, agency provides government-backing that minimizes risk to approved lending partners in order to encourage the flow of capital to small businesses.

Under the agency’s popular 7(a) loan program, the SBA guarantees between 50 percent and 85 percent of an eligible bank loan up to a maximum guaranty amount of $3,750,000. The exact percentage of the guaranty depends on a variety of factors, including the amount an entrepreneur is looking to borrow and what the uses for the funding will be. When lenders face less risk in making a loan, they are more likely to approve the funding request. SBA loans typically come at attractive rates (7 to 8 percent) and at longer terms than other types of loans so that entrepreneurs can pay the low-cost money off over an extended period time.

The down side of SBA funding is that because of government involvement, the amount of paperwork required is larger and the time it takes for the funding to be approved is longer than for other types of financing.

Business Lines of Credit

A small business line of credit is an attractive option for many women-owned businesses, as well as for companies owned by men. It’s like having a debit account available for use by a company on an “as needed” basis. Companies that qualify can open a line for a fee of $100 to $250 that is frequently waived in the first year. The funds are then used when necessary. Interest is paid only on the amount that a company has drawn out of the account. Interest rates for small business lines of credit currently vary from prime + 1.75% to prime + 9.75%.

Microloans

Female entrepreneurs who do not require a large amount of capital

can take advantage of microloans that are available from a variety of sources, including non-profit lenders, such as ACCION. Typically, the amounts of these loans are under $50,000. Microloans can be used for working capital, inventory, furniture/fixtures, computers and other equipment. They cannot be used to purchase buildings or real estate.

A microloan is a great option for a company that does not require a lot of money to get up and running. They are particularly helpful to startups and to women business owners who have not yet built a strong business credit rating. Naturally, for companies that require infusions of cash in larger amounts, other forms of financing are required. Additionally, the interest rates charged for microloans (typically 8 to 13 percent) are likely to be higher than the rates charged for an SBA loan or term loan. By repaying the micro financing quickly, a small business owner puts herself in a better position to secure a less costly form of funding the next time an infusion of cash is required.

The SBA provides assistance in securing all of the previously mentioned types of funding. Additionally, the agency has a national network of over 100 Women's Business Centers (WBCs) throughout the U.S. and its territories. These educational centers are designed to assist women who are in the process of starting and growing small businesses. WBCs aim to "level the playing field" for women entrepreneurs, who still face unique obstacles in the business world. The centers are listed by state on SBA.gov and offer advice, mentoring opportunities, training, certifications, and networking opportunities.

SBA’s Office of Women’s Business Ownership oversees the WBC network, which provides entrepreneurs (especially women who are economically or socially disadvantaged) comprehensive training and counseling on a variety of topics in several languages.

Rohit Arora, CEO of Biz2credit, is one of the country's best known experts on small business financing and financial technology (FinTech).

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5 tips for small business owners in 2018

Small business owners have entered 2018 with many questions about how big their tax bills will be, but they’re also optimistic about profiting from a strong economy. And aside from financial matters, owners with employees must stay mindful about one of the troubling issues of 2017, sexual harassment.

Here are five things small business owners need to know about or do in 2018:

TAXES

The new tax law changes rates for many small business owners, whether they are sole proprietorships, partnerships or corporations. But the benefits aren’t across the board: Some owners will lose out on savings because they’ll end 2018 with income above thresholds set out in the law, or they work in fields such as accounting, law or consulting.

Many business owners aren’t sure yet how the law will affect them. Although accountants and other tax professionals may have given owners some general ideas about the impact, the IRS must still write regulations that will spell out what taxpayers can do under the law and how they must comply.

Some things are known. The Section 179 deduction that small businesses can use to get an immediate break on purchases of equipment ranging from computers to vehicles to manufacturing equipment doubles this year to $1 million.

And separate from the tax bill, the IRS has set the standard mileage rate for business use for a car at 54.5 cents per mile, up 1 cent from 2017. The rate is one of two methods for accounting for how much an owner spent on using a car for business; the second is to deduct the actual expenses for the car. Under the actual expense method an owner must calculate the percentage of miles the car is driven for business, and apply that percentage to expenses like lease payments, fuel, maintenance, repairs, insurance and depreciation.

THE ECONOMY

If the economy maintains the robust expansion it showed in 2017, owners’ profits and their optimism should grow as well. But that may not translate into more jobs.

In multiple surveys last year, owners indicated they’re generally sticking to their conservative hiring patterns. Job creation plans ticked higher in a fourth-quarter survey by researchers at Pepperdine University’s Graziadio School of Business and Management and Dun & Bradstreet Corp., with 42 percent of small business owners saying they’d add one to two staffers in the next six months, up from 38 percent in the third quarter.

Owners have said a significant revenue increase might persuade them to hire. For many, that could depend on whether consumer spending remains strong. The government’s figures on retail sales and consumer spending show Americans were feeling fine about spending as 2017 ended, a sign that business will be good in the new year. Retail sales rose 0.8 percent in November after a 0.5 percent gain in October, according to the Commerce Department. Overall consumer spending rose 0.6 percent in November after rising 0.2 percent in October.

Many small businesses are dependent on consumers, among them restaurants, retailers and service providers like hair salons. Consumers may feel like spending if the stock market extends its big 2017 advance; the Dow Jones industrial average rose 25 percent, giving many people with 401(k)s and other accounts a stronger sense of financial well-being.

Unpredictable events such as blizzards and hurricanes can hurt spending, and slow the economy. But if consumers regain their confidence quickly, small businesses are likely to shrug off any dips.

HEALTH CARE

Most companies’ health care plans are set for 2018, but there will be some changes when it comes time to choose policies that begin later this year or in 2019.

Owners who want to sign up for group insurance through the government’s Small Business Health Options Program, or SHOP, now must do so through a health insurance agent or broker or directly through an insurance company. They’re no longer able to sign up through the government website, www.healthcare.gov. However, they can visit the site to get information.

The new tax law has ended the requirement that individuals buy health insurance starting in 2019. Some very small business owners had stopped offering health plans when the Affordable Care Act was enacted because their staffers were able to get coverage through health insurance exchanges. While businesses with fewer than 50 employees aren’t required to offer insurance, some may find their staffers are interested in group coverage.

SEXUAL HARASSMENT

Human resources experts usually advise business owners to update their employee handbooks early in the year. It’s a task that’s more of a priority at many companies this year following a series of reports of workplace sexual harassment.

“Every employer should have a policy in their handbook that makes clear that sexual harassment is not welcome and that defines sexual harassment,” says Jay Starkman, CEO of Engage PEO, an HR provider based in Hollywood, Florida.

Owners can find templates for sexual harassment policies online. Whether they’re creating a policy for the first time or already have one, they should have it reviewed by an HR professional or an attorney with expertise in sexual harassment or employment law.

Companies may also want to consider training sessions to educate staffers and managers about harassment — what it is, how to recognize it, how to report it to owners or senior executives.

Owners who don’t have employee handbooks should think about creating them. Besides harassment policies, they should contain the company’s policies on discrimination, discipline, vacations, performance reviews, ethics and use of company computers, among many other issues. They should also include information on benefits. Owners can find templates online.

MINIMUM WAGE RISES

Eighteen states have higher minimum wages as of Dec. 31, 2017, or Jan. 1.

Laws were passed boosting the wage floor in 10 of those states: Arizona, California, Colorado, Hawaii, Maine, Michigan, New York, Rhode Island, Vermont and Washington state.

Eight states see increases because their minimums are tied to the inflation rate. They are Alaska, Florida, Minnesota, Missouri, Montana, New Jersey, Ohio and South Dakota.

Small businesses such as restaurants or food service companies are most likely to now be paying their workers more under the higher minimums. Three-fifths of all workers paid at or below the federal minimum wage of $7.25 an hour are in the leisure and hospitality industries. Almost all of those are restaurants or food service businesses, according to the Department of Labor.

Copyright 2018 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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