Most minorities in the U.S. get frustrated when seeking collateral business loans New York. Over the last ten years, small and medium enterprises (SMEs) have grown by more than 75%. There are about 11.1 million SMEs in total.
Unfortunately accessing loans remains an uphill task for most minority owned SMEs. Here are the top reasons why it’s difficult for minority entrepreneurs to obtain loans.
- Poor Credit History
On average, minority investments have a low credit score of about 707. It’s almost 15 points less than that of other small American ventures. It’s critical to have an excellent credit score to get a bank loan. Nevertheless, there are various reasons why an investor would have a poor credit history.
Currently, private funding firms are gaining popularity. They mine customer data and consider various factors including cash flow, industry, location and time. Also, they check monthly bank balances in business accounts, lease period and number of employees. Such models help minority businesses to get collateral business loans, New York.
- Low Net Worth
Surprisingly, most minority-owned businesses fail to get small investment loans due to low assets and low net worth. Recent studies reveal that African-Americans and Latinos have 15 times lower net worth than Native Americans. On average, white entrepreneurs start a business with working capital of $106,720 while African-American investors use a working capital of $35,205.
Traditionally, banks neglect loan applicants with a low net worth due to their inability to offer collateral. As a minority investor, having a low net worth means you can’t own a decent home or expensive assets to use as collateral. This makes banks hesitant to give you a loan. Most banks offer small enterprise loans with a short repayment period.
- Inappropriate Business Location
Location is a crucial factor that determines your success in getting collateral business loans. Most minority-owned investments are in poor urban areas. The Small Business Administration conducted research which reveals that an investment’s location has a significant influence on getting loan approval. Often, poor communities require small investments to boost their economies.
However, banks don’t focus on long-term goals when creating enterprise-funding programs. Banks are not a viable option when seeking collateral loans for minority businesses. You’re not restricted to having an excellent credit history.
Some business financing firms don’t overemphasize on your business’s size or net worth. They offer 100% unsecured loans that don’t require collateral. Also, they finance different industries including hospitality.
Individual lenders have programs suitable for enterprises with little capital. They offer negotiable guidelines to loan applicants. Such funding firms have helped many minority businesses to build an excellent track record.
So, what can minority entrepreneurs do?
If you have valuable items, consider pawning. Get in touch with GEM pawnbrokers to help you access collateral business loans New York.