Minority business loan resources and guide.

Jul 21 2020 | PayPal Editorial Staff

Like many small business owners, a challenge minority businesses face is access to capital, or the ability to borrow money for business growth and expansion. Small business loans for minorities exist, but there are additional requirements for getting approval.
Minority businesses continue to be an indispensable part of our economy. According to the U.S. Senate Committee on Small Business & Entrepreneurship, there are now more than four million minority-owned companies in the United States, with annual sales totaling close to $700 billion.1

Understanding what financing options are available can help business owners during difficult times and times of growth.  There are different programs and loans designed specifically for businesses considered minority businesses. According to the
 National Minority Supplier Development Council (NMSDC), which certifies that businesses are minority owned, to qualify for the classification of a “minority business,” a company must be at least 51% minority owned, operated and controlled. 

When a small business loan is a smart move.

Some small business owners bootstrap their companies, scrimping and making do with what they have in the early years to avoid overspending or going into debt. But operating on a shoestring budget long-term may limit growth.

If your small business can't keep up with demand for products or services and could generate higher revenues if you had money for raw materials, production, marketing, or labor, then you could consider a business loan, which may help increase your business’s revenues.

Differences between a personal and a business loan.

Some small business owners choose to apply for personal loans to fund their businesses based upon their personal credit score, income and sometimes collateral (such as their home). Although interest rates are sometimes lower for personal loans than business loans, you may risk losing your home if you use it as collateral and you default on your loan.

Some small business loans require a personal guarantee, which means that you're still personally responsible for repaying the loan whether or not your business succeeds.  For these loans, the decision to approve or deny the loan will partly depend on the success of your business and partly on your personal financial history.

Requirements for getting approved for a business loan.

When evaluating your loan application, business lenders may weigh three factors:
  • Your personal credit score.
  • How much revenue the business generates.
  • How long you've been in business.
Depending on the results, lenders may also consider:
  • Your business's credit score.
  • What kind of collateral your business has (assets like property and equipment that can be sold in the event of a default on the loan).
  • The type of small business you're operating (some lenders may not lend to particular industries, such as real estate investors).  

Financing options to consider when looking for a minority business loan.

Loans come in different shapes and sizes. The type of loan you apply for may depend on how you plan to use the money.

Do you need financing to purchase a building or equipment? Do you need money to expand your exporting efforts? Or do you need a loan so you can hire more employees?

Check the lender’s description of the types of loans that they offer before you invest time in filling out paperwork to be sure your planned use qualifies.

A line of credit is similar to a credit card, where, if approved, the lender offers you a maximum loan amount, but allows you to use it when you need it. Some businesses apply for a line of credit to have it "just in case" they need it.

A term loan is a traditional lump-sum loan, where, if approved, you receive a specific amount to be used immediately to buy what you need, such as a delivery truck, and then you repay it in installments.

An operating loan is used to finance a business’s everyday operations, such as payroll, raw materials or utility bills, rather than investing in equipment or other products.

Common minority business loan providers.

A good place to start when looking for a business loan is the bank where you have your business checking account. Your odds may be better there.

Tip:  The Small Business Administration (SBA) itself does not make loans; to assist small business, the SBA does guarantee certain loans made to small businesses by private and other institutions. 

Types of SBA loans include:
  • Microloans: These are smaller loans of up to $50,000 (the average amount is $13,000) that must be repaid within six years. Businesses and not-for-profit childcare operations can apply.
  • 7(a) loans: These are loans of up to $5,000,000.00 with several variations that determine the maximum loan amount and repayment period.
  • Community advantage loans: Business owners who live in under-served communities may qualify for loans up to $250,000.00 based on their zip code.

If you decide to work with the SBA, you might want to consider applying for the 8(a) Business Development Program. This program is designed help small, disadvantaged businesses succeed by providing technical and managerial services like mentoring, counseling, and executive development. Members of the 8(a) Business Development Program are also given an opportunity to bid on federal contracts federal contracts under the guidance of a Business Opportunity Specialist.

Other loan programs exist for the companies of minority business owners that are headquartered in certain states or cities, such as:
  • The Minority Business Development Agency provides resources for loans, grants, trusted guidance, etc. geared specifically for minority owned small businesses.
  • The Business Consortium Fund Loan for NMSDC certified minority companies.
  • The Asian Pacific Islander Small Business Program that works to develop small and micro businesses in Los Angeles with a particular focus on the Chinese, Korean, Japanese, Thai and Filipino business communities, especially those of low income immigrants.
  • Meda, a Minnesota based service provider connecting minority-owned businesses with business opportunities, access to capital, and business consulting.
If you think a business loan could provide the resources your company needs to be even more successful, start now to identify potential lenders and clean up your finances in preparation for your loan application.
The content of this article is provided for informational purposes only. You should always obtain independent business, tax, financial, and legal advice before making any business decision.

1 Minority Entrepreneurs, U.S. Senate Committee on Small Business and Entrepreneurship. 

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Frequently asked questions.

PayPal Working Capital is a business loan of a fixed amount, with a single fixed fee. The loan and fee are repaid automatically with a percentage of your PayPal sales (a minimum payment is required every 90 days). There are no periodic interest charges, late fees, pre-payment fees, penalty fees, or any other fees.

If approved for a loan, the process is easy:
  • Select your loan amount. Maximum loan amounts vary based primarily on your PayPal account history.
  • Choose the percentage of your future PayPal sales that you want to go toward repayment of the loan amount and the loan fee.
  • Accept the terms and conditions, and the loan funds are deposited into your account with PayPal.Your repayments will be taken from your future PayPal sales until your balance is paid in full. You can also make additional payments or even pay the loan in full with no early repayment fee.
UPDATE AS OF 6/16/20:

Due to overwhelming response to the PayPal Empowerment Grants for Black Businesses Program, we paused the acceptance of new applications on Saturday, June 13 at 3 p.m. EDT. This will allow us to process submitted applications and assess availability of additional funds.

We recognize the critical challenge of access to capital that Black-owned businesses face. Please know that this grant program is part of a larger commitment from PayPal to invest in Black and minority-owned businesses and communities. Together, AEO and PayPal are determined to do more to execute on our shared vision of creating economic opportunity. We are exploring additional ways to address this urgent need.

We encourage those who were unable to complete an application by 3 p.m. EDT on Saturday to visit aeoworks.org/paypalgrant to join a mailing list for future updates.
I saw the announcement that the grant is closing, will there be another opportunity? 
Due to overwhelming response, we paused the acceptance of new applications on Saturday, June 13 at 3 p.m. EDT. This pause will allow us to process submitted applications and assess the availability of additional funds. 

We recognize the critical challenge of access to capital that Black-owned businesses face and are exploring additional ways to address this urgent need. 

Why isn’t PayPal doing anything for other minorities and economically challenged people of all races?
PayPal's mission and vision is that every person has the right to participate fully in the global economy, and we have an obligation to empower people to exercise this right and improve financial health. PayPal provides simple, affordable, secure and reliable financial services and digital payments that enable the hopes, dreams and ambitions of millions of people around the world. In addition to our global commitment to help everyone improve financial health, we also recognize the critical challenge of access to capital that Black-owned businesses face and we are committed to helping the Black community overcome these challenges.
My application was in progress when I received the notice. Am I still able to submit? 
Thank you for beginning your grant application. Incomplete applications expired on Tuesday, June 16 at 3 p.m. EDT and will no longer be considered.     

If you didn't complete your application by 3 p.m. EDT on June 16th, we will automatically place you on a mailing list to receive future updates on the program. 
I submitted my application prior to the notice, am I still eligible? 
Yes. If you received email confirmation that your application was submitted, you are still in the review cycle. We will start our evaluation and will follow up in the next two weeks.  
I've already submitted my application. Does this mean there will be a delay in when I receive funding? 
Thank you for your submission. We are using this time to focus on your application. We will start the review process in the next two weeks. This will not impact your reward timeline.  
When do you expect the program to reopen? How will we be notified? 
We are exploring additional resources that may be helpful to you. Please check back on the website https://aeoworks.org/paypalgrant/ for the most recent updates. In the meantime, these additional options may be helpful to you: 

The AEO Main Street Rise package offers AEO products to support your small business during this challenging moment. 

If your organization has been negatively impacted by COVID-19 and has not yet been approved for an SBA Paycheck Protection Program loan, PayPal is still accepting PPP loan applications. You can learn more about PPP loans at paypal.com/ppploan. Obtaining a PPP loan will not disqualify your organization from applying for the PayPal Empowerment Grant. The lender for the Paycheck Protection Program Loan through PayPal is WebBank, Member FDIC.

On June 11, 2020, we announced our commitment of $10 million to Black-owned businesses impacted by COVID-19 or civil unrest. These grants will provide direct support to business owners to cover expenses related to stabilizing and reopening their businesses. The fund will be managed in partnership with Association for Enterprise Opportunity, a leading national nonprofit expanding economic opportunity for Black entrepreneurs through its Tapestry Project.

What information is needed and how do I apply?
If you are interested in applying for an empowerment grant, please visit https://aeoworks.org/paypalgrant/ to learn more and access the grant application. We are working closely with our partner the Association for Enterprise Opportunity to conduct a detailed vetting process on each of the businesses that will be awarded a grant.

Who is eligible to receive these grants?
These grants will focus on providing support to Black small business owners to cover expenses related to stabilizing and reopening their businesses that have been impacted by COVID-19 or civil unrest. Applicant must be small business owners (under 50 employees, with revenue less than $1 million) operating as of May 2019. Sole proprietors, independent contractors, and self-employed persons are welcome to apply. Additional requirements may apply.
What can this grant be used for?
The grant funds must be used to help small businesses recover from instability caused by the COVID-19 shut down or the recent civil unrest. This can include expenses related to payroll, benefits, interest on mortgage obligations, rent, utilities, and repairs.
What do I need to apply?
You’ll need to provide basic details about your business, its operations and the funds you need. We’ll ask you a standard list of questions to ensure you meet the qualifications. You’ll be required to qualify for and have a PayPal Business Account in order to receive the grant.
Is there a deadline?
Grant applications will be accepted until the $10 million in empowerment funds have been distributed.
How long is the review process? When can I expect to hear back?
We will work through applications as fast as we can. You will receive an email confirmation as soon as your application is submitted. You can expect to hear from us within 1-2 weeks.
What are the terms of the grant? Do I have to pay it back?
No, the funds are yours to invest in your business.
What amount can I qualify for? 
You will be asked to carefully calculate and request only the amount you need in order for your business to recover (up to $10,000 USD). We are working to empower as many small businesses as possible though this community-focused effort.
Why is PayPal doing this?
Inclusion is part of how we do business at PayPal, and we want to be thoughtful with a significant commitment to help address systemic racial injustice. Our central mission is democratizing access to financial services and creating new economic opportunities for as many people and businesses as possible. We were spurred to even greater action by recent events. As we continue to live through an unprecedented global pandemic and economic crisis that has disproportionately affected more poor people and communities of color, we knew that we had to do more to live our values.

How do I get updates on the application process?
You can contact AEO at smb@aeoworks.org.
Because your automatic repayments get deducted as a percentage of each PayPal sale, the amount you repay each day changes with your sales volume. The more you sell, the more repayment progress you’ll make that day. On days without sales, you’ll make no payments, but there is a minimum repayment requirement every 90 days.

Depending on the loan terms you choose, you must pay at least 5% or 10% of your total loan amount (loan + the fixed fee) every 90 days.

The 5% minimum applies to loans estimated to take 12 months or more to be repaid, based on your business’ past PayPal sales and other factors. The 10% minimum applies to loans estimated to be repaid within 12 months.

For most of our customers, regular automatic repayments easily cover the minimum and this is never an issue. But if you do get behind, you can make additional payments on the PayPal Working Capital website.

If you do not meet the minimum payment requirement and your loan goes into default, your entire balance could become due and limits could be placed on your PayPal account.

Please see Section 12 (Account Terms) of our Terms and Conditions to learn more about default.

Tip: You can make additional payments or even pay the loan in full without any penalty.
No, you cannot get additional funds added to a PayPal Working Capital loan. To get more funds, you’ll need to apply for another loan. The lender issues PayPal Working Capital loans one at a time and we don’t currently offer a way to add funds to an existing loan. You may be eligible to apply for another loan after you pay any existing loan in full.

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