Wednesday, June 1, 2011

Financing Options for Minority Entrepreneurs

Below is an excerpt from an article entitled, "6 Capital Funding Sources for Minority Businesses" by Carolyn M. Brown of Inc. Magazine. Click on the title to read the article in its entirety. The article is interesting but is most targeted at tiny minority businesses or start-up minority entrepreneurs. It speaks of hybrid loan grants ranging from $3,000 - $9,000. That's only good if you are a start-up or a micro business. If you are doing $1 million or more in revenue, $3,000 is not going to do much for you. However, if you are a micro business or a bootstrapping start-up, please read the article for sources that may be of benefit to you. Only two of the six capital sources cited are minority-specific or have a minority-specific component. Because this blog focuses on small AND medium businesses, I chose to include the discussion on new market tax credits, which I also have some experience in.


New Market Tax Credit

For companies looking for commercial ownership or to own their own facility, Ough suggests exploring new market tax credits. This federal program is administered by the U.S. Department of Treasury Community Development Financial Institutions Fund. Designed to provide investments to projects and businesses in low-income communities, the program has expanded to include investments in minority business. NMTC permits taxpaying investors to receive a credit against their federal income tax liability for making qualified equity investments in designated Community Development Entities (CDEs). The credit is spread over seven years, amounting to roughly 39 percent of the investment made in a qualified entity. Many states have passed a tax credit for minority business. The provisions and limitations of these credits vary from state to state. Many of them resemble the New Market Tax credit and give tax credits against state income tax to investments that are used to support minority building projects or encourage minority business ownership, which includes women-owned businesses. However, these credits are extremely tough to get and are highly competitive.


I think the last statement refers to the states' programs that resemble the federal New Market Tax Credits (NMTC). The NMTC program is highly specific but it is not overly competitive. Because the NMTC program has such specific requirements (pursuit of a building project, within certain geographic areas, need a bank willing to partner), it automatically weeds out many of the entities that would normally pursue such funding. If your company is a minority-owned business or woman-owned business and you are thinking of acquiring property as part of your expansion strategy, I highly recommend you look at NMTCs as an option.

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