Small businesses are the backbone of local communities. They provide jobs, and their unique services help define a town. Successful business owners can take pride in knowing they are contributing value where it is needed, and possibly even creating something totally new. Business loans for Native Americans provide opportunities for indigenous peoples to get involved in their communities, build businesses, and make a difference.
Entrepreneurs can use business loans to build a brand-new business from the ground up or to expand or rebuild an existing business. There are various types of business loans, each tailored to a specific need or niche. If you are a Native American, there are many opportunities for financial backing to help bring your business ideas into reality.
SBA-Backed Business Loans for Native Americans
Through the U.S. Small Business Administration (SBA) and the Office of Native American Affairs (ONAA), Native Americans can find help with starting a small business. This assistance includes mentorship, specialized workshops, and access to financial planning resources. Along with empowerment workshops through partnerships with Red Wind and Sister Sky, Inc, the SBA has several loans available to assist new and existing business owners secure the funds they need.
SBA-backed loans serve the purpose of helping people who wish to start a new small business or expand an existing business. The SBA works as a conduit between entrepreneurs and lenders. They guarantee part of the loan, removing some of the risk for the lender and streamlining the process of obtaining funding for the entrepreneur.
Through SBA-backed business loans, Native American business owners can potentially see lower down payments, better rates, and reduced or eliminated collateral requirements.
SBA Loans Eligibility Requirements
According to SBA regulations, the eligibility requirements for SBA-backed loans are:
- As specified by the SBA, the loan must be for a small business.
- You must be able to pay back the loan, meaning your business must be creditworthy.
- The business must be for-profit, officially registered, and otherwise operate legally.
- The business must be located in the United States and operate in the United States or its territories.
- The loan you seek must not be available to you via non-government resources.
Types of SBA-Backed Loans
There are several types of SBA business loans for Native Americans.
SBA 7(a) Loan
The SBA 7(a) Loan was created to assist with the basic needs of a small business or to refinance an existing loan for a small business. Terms vary according to the type of interest rate (variable or fixed) and the lender, and entrepreneurs may borrow up to $5 million.
With an SBA 7(a) loan, business owners may:
- Access additional working capital
- Purchase equipment
- Buy real estate
- Refinancing a debt
- Purchase Inventory
- Start a new business
- Expand an existing business.
Interest rates for SBA 7(a) loans are typically lower than traditional loans. Because the SBA backs the loan by guaranteeing a portion of it through an SBA-approved lender, an SBA 7(a) loan is usually easier to secure.
SBA 504 Loan
The SBA 504 Loan is a fixed-rate, long-term loan used to purchase assets such as real estate or large equipment. The loan leverages a partnership between a Certified Development Company and a private lender. Certified Development Companies are non-profit companies certified by the SBA to encourage economic development in a specific region.
With an SBA 504 loan, the SBA typically covers up to 40% of the expenses via the Certified Development Company, the lender covers about 50%, and the borrower takes on the rest. Through this method, entrepreneurs can borrow up to $5.5 million for terms of 1–25 years, with fixed interest rates lower than what they’d see from other kinds of loans.
SBA Microloans
Microloans, as defined by the Small Business Administration, are short-term loans for small businesses for up to $50,000. Small businesses can use these loans to fund inventory, equipment, and capital necessary for a startup.
SBA Microloans are especially helpful for business owners who don’t qualify for traditional loans, though applicants must still meet the same criteria as they would for other SBA-backed loans. If accepted, entrepreneurs can take advantage of good internet rates for a term from six months to seven years.
Indian Loan Guarantee and Insurance Program
While it does not lend funding itself, the Indian Loan Guarantee and Insurance Program (ILGP) provides an avenue for American Indians and Alaska Natives to secure business loans. Because the Federal Government guarantees the loan, lenders assume less risk, and borrowers see more favorable interest rates.
As per the ILGP, to qualify, a borrower must be one of the following:
- A member of a federally recognized American Indian or Alaska Native tribe or group
- A federally recognized American Indian or Alaska Native tribe or group
- A corporation, LLC, or other business entity with 51% or greater ownership held by federally recognized American Indian or Alaska Native individuals.
These business loans for Native Americans can be used for a wide range of business purposes, including new acquisitions, construction, and equipment. However, the project must benefit the reservation or tribal service area, and borrowers must hold 20% or greater equity in the project.
U.S. Department of Agriculture Business & Industry Loan Guarantee
The U.S. Department of Agriculture (USDA) has a loan guarantee program that can benefit Native American business owners as well, called a Business and Industry (B&I) Loan Guarantee. The USDA has specifically intended this program for the development of businesses in rural areas.
Like the IGLP, because the Business and Industry Loan Guarantee program is backed by the federal government, eligible borrowers can take advantage of better terms. Those who qualify for this program include federally recognized tribes.
Business owners must be citizens of the United States or legal residents, and they must intend and be able to show that they will use the loan in the United States to create or save jobs for rural Americans.
Office of Indian Economic Development
The Office of Indian Economic Development (OIED) is part of the U.S. Department of the Interior’s Bureau of Indian Affairs (BIA). Its goal is to promote and assist with economic and business development within Native American communities.
The OIED can be a tremendous resource for Native American businesses. Through the OIED, you can find support and guidance to help get your business off the ground, learn about funding opportunities and how to access capital for your project, find partnerships, and get access to market research.
Angel Investors
Angel investors may be available to help some Native American business owners. Angel investors are wealthy individuals who invest in new businesses or startups, often in exchange for equity in the company. While they can provide important funding, working with angel investors also carries risks, such as losing some control over the business and having to share profits. They are usually interested in supporting a particular cause or idea that excites them, and they help fill the gap between traditional funding and personal investment.
Venture capitalists serve a similar role, but they are typically more interested in the financial returns. Angel investors are more likely to take risks on ideas that may not fit typical lending criteria.
There are resources online that help match angel investors to specific causes and businesses.
Peer-to-Peer Lending
Native American business owners may have access to unique peer-to-peer lending opportunities. Peer-to-peer (P2P) lending allows entrepreneurs to borrow money directly from other people or organizations without having to go through a bank or other traditional financial institution. Online platforms such as Upstart, Prosper, and Lending Club connect lenders and borrowers.
Advantages of P2P lending include potentially lower interest rates, while lenders can see higher returns. It is often a simpler process with quicker access to capital that can be a win for both parties.
For borrowers, there are downsides as well, as there is less regulatory protection, and required credit checks could lead to lower credit scores. It is important to weigh the pros and cons before entering into an agreement with a private lender and forgoing traditional financing.
Local Banks
Banks in your area may have programs specifically designed to promote Native American business development. They may offer special rates or incentives for specific types of businesses. Or, they may partner with federal programs. It is worth your time to look around and see what they have to offer.
Business Grants for Native Americans
In addition to loan opportunities, there are many grants available for Native American business owners.
- Native American Business Incubator Program: A federal program that offers assistance to American Indian and Alaska Native tribes, including the procurement of grant money.
- Montana Indian Equity Fund: A small-business grant intended to assist new or expanding Native American-owned businesses in Montana.
- First Nations Development Institute: Connects Native American-owned businesses and organizations with grants.
- Tribal Energy Development Capacity Grant: A federal program designed to help tribes develop and regulate energy resources.
Find the Best Business Loans for Native Americans
Wading through available loans for Native Americans can be confusing, and it is helpful to reach out to a knowledgeable resource that can help you make sense of it all.
Businessloans.com can help connect you with the best business loans for Native Americans that fit your project goals. Find out how we can help you fund your next business idea.
