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minority owned business loans
  • Emma Parker
  • September 22, 2022

Every business has unique needs, and despite having enough money stashed away, you may need to borrow additional funds to hit the ground running. However, when it comes to minority owned business loans getting funds from financial institutions can be quite difficult because of subconscious biases, inefficient credit history, and limited business transactions.

Usually, you are just supposed to fill out a questionnaire so a lender can provide you with a personalized loan matching your needs. The most popular reasons to borrow money for your business are working capital, business growth, marketing and covering a one-off cost.

There are some lenders that can lend you money to fund your business needs. Even if you need money despite a poor credit rating, a few lenders are out there who would be able to lend you money, so your business keeps going.

This blog discusses some types of business loans you can think of applying for. They all have their own features, so carefully weigh up your options.

What are the types of Minority Owned Business Loans?

Traditional financial institutions may not be interested in entertaining your application, especially if it is not strong from all angles. Therefore, alternatives like online lenders would be a better choice for you to fund your business. Here are some of the loan options that are ideal for funding your small business.

  • Personal Loans

A business loan generally requires a large amount of money, and it may not be easy to get that much from traditional financial institutions without putting down security. Therefore they will bar you from applying for these loans.

They will likely ask you to apply for a business loan, and you will need to go through a lot of formalities, like submitting your business plan. It is certainly going to be very tricky to meet their criteria. Therefore, you can consider applying for personal loans from direct lenders in UK.

You can use these loans for any purpose, and you do not need to submit a business plan, nor do you need to turn in the collateral. Also you can use the money for any purpose of your business, whether you need it to fund working capital or you need it for a marketing project.

You will be paying down the debt in fixed monthly instalments. Despite having a poor credit rating, these loans do not require a guarantor or collateral. You are eligible for these loans even if your credit history is not built. However, you will be charged a slightly higher interest rate in such scenarios.

Use an online calculator to get the estimation of monthly instalment size and total loan repayment so you can do homework to know if you can afford this loan.

  • Small business cash flow loans

Personal loans could be the best option for you if you need a large funding source. However, there are scenarios in business when you would need small funds just to fill the gap in cash flow. Poor cash flow is the biggest concern in businesses because, most of the time, customers do not pay invoices on time.

It may be difficult for you to run a business without sufficient cash flow. Despite chasing your borrowers, you are unlikely to get paid on time. Small business cash flow loans can come in handy if you need immediate funds.

These loans are much more affordable than personal loans as you can secure them with unpaid invoices. It means you will be borrowing against the invoices. Once you get money from a direct lender, it is their responsibility to get it from them, but it does not mean you will stop chasing them.

This is because you, as a borrower, are responsible for paying down the debt. Unpaid invoices will serve as security for a lender. If your borrowers make a permanent default, your lender will chase you to get the money paid back.

  • Online term loans

Most of the people think that term loans are available only from traditional lenders like banks, but direct lenders also offer online term loans. These are also known as instalment loans that you can apply to meet your business needs. You are eligible for these loans even if you have a bad credit rating.

However, it must not be lower than 600. These loans are suitable for expanding your business. Depending on your creditworthiness, the APR may vary between 11.99% and 34.99%. Depending on the amount you are borrowing, the duration of these loans may be up to five years.

The best part about these loans is that you can get money without too much paperwork. You can borrow money despite less-than-perfect credit history. Some lenders may require you to arrange a guarantor or apply for a loan with a co-applicant with a good credit rating.

  • Line of credit

This is another lending source that you may need if you do not have enough cash to meet your business needs. The line of credit, however, works differently. These are exclusively for funding small amounts of money. A line of credit is usually available for borrowers with good credit history.

However, you can apply for these loans if you have a bad credit rating as well, but most of the lenders would require you not to have less than 600 scores. One of the greatest benefits of using a line if credit is that you can use the money over and over if you pay off the balance.

For instance, if you have a limit to borrowing £3,000 and have withdrawn half of it, now you have £1,500. If you pay down £700, you are eligible to withdraw £2,200. The APR of these loans could be slightly higher. Make sure you have analysed your budget.

Unlike other loans, you do not need to put in papers related to your business growth, profitability and income. Just fill in the application form, and a lender will quickly lend you money the same day. This is beneficial for start-up businesses that often struggle with cash flow.

You may not be able to qualify for other loans. If your credit rating is not that good, but the line of credit can come in handy at that time. Apart from other loans, they are considered more affordable. You do not have to pay hefty fees.

Conclusion

It could be quite challenging to fund minority owned businesses as most of the financial institutions do not approve minority owned business loans, and the most common reason is subconscious biases. Well, you do not need to worry about it, as you can approach direct lenders.

They will likely lend you money even if you have a bad credit rating. They may provide you with various alternatives. Make sure you would be able to pay them off on time.

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