December 25, 2019
Starting a business is a challenge for every kind of entrepreneur. Coming up with the resources and funds needed to start a business is no easy task. New immigrants can face special challenges for a variety of reasons including a lack of credit history, language barriers, and a lack of knowledge about US-based financial systems. Even in the face of these challenges, immigrants in pursuit of the American Dream are prolific business founders in the US. According to the U.S. Small Business Administration, “Immigrants are found to have higher business ownership and formation rates than non-immigrants. Roughly one out of ten immigrant workers owns a business and 620 of 100,000 immigrants start a business each month.” While it may seem like there are many barriers for new immigrant business owners seeking funding, there are actually many options for funding your business development.
Credit unions, banks, and other financial institutions may provide term loans but there is typically an arduous application process. A bank is also likely to turn down a potential borrower with a lack of sufficient history or collateral. Alternatively, credit unions may be more flexible than traditional local banks. An immigrant business owners may find it easier and more flexible to secure short-term loans (12-18 months) or a business line of credit. Although these types of loans will often have higher interest rates, they can be useful for a variety of needs such as buying inventory, securing working capital, hiring initial staff, or doing an initial advertising campaign.
According to Sahil Vakil, the Founder & CEO of MYRA Wealth – a Registered Investment Advisor (RIA) that provides Personal Finance services to international & multicultural individuals in the United States, there are resources that new business-owning immigrants should be aware of when seeking business financing.
“If a new or recent immigrant is trying to start a business and get approved for a loan, The Small Business Administration is a great starting point. They assist permanent residents as well as legal non-permanent citizens with connecting with lenders that best fit their needs,” Sahil explained.
SBA loans can indeed be the most affordable type of loan and are an excellent option for permanent residents or working visa holders. However, they often have hurdles to jump through and you will need a credit and business history to apply. This document on the SBA website (page 110) explains the rules for immigrants that are applying for SBA loans.
Business grants can also be an attractive option for business-owning immigrants that are looking for financing. Open grants are available on Grants.Gov. Before you apply for a grant, it is important to know that they are highly competitive.
When asked what new immigrant business owners can do to make their loan applications more appealing to lenders, Sahlil had said, “Make sure there is a proper business plan in place. There needs to be a clear understanding of what the money will be used for and why it’s needed in the first place. The last thing you need is to take on debt that you cannot afford.”
In comparison to a traditional bank, an online lender can provide more flexibility and speed during the loan application and approval process. Occasionally, an online lender will have higher interest rates, but for certain business owners, the flexibility and speed of acquiring the loan may be worth it. Additionally, a borrower will almost always need to supply their ITIN or social security number to apply.
Biz2Credit is an online small business lender that lends to new immigrant business owners. As long as the company is in the US, it can be evaluated for loan approval.
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Equipment financing is used to purchase business equipment like machinery or computers. The equipment is the collateral for the loan, which can make the loan less risky to the loan provider. You can even finance up to 100% of the value of the equipment. This can be a good fit for new immigrant business owners who don’t have substantial business or credit history.
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Since new immigrant business owners can face additional hurdles securing funding, it may be necessary to set aside personal funds and savings to invest in their new business concept.
Crowdfunding is a new and exciting option for new immigrant entrepreneurs. With sites like Indiegogo or Kickstarter, you can raise a small or large amount of money to fund your business. In general, you do not give away equity in the business and instead offer something of value, like a new product, to your funders. It’s important to invest time in producing your crowdfunding website such as a polished video, photos, and description to attract funders.
If possible, friends and family can be a vital source of financial assistance for any entrepreneur. Consider seeking out friends and family (or asking them to introduce you to individuals who can help) to provide loans or investments for your business.
Business lines of credit or credit cards can be a great option, particularly for short-term cash flow or to cover start-up funding needs. Before committing to a card or line of credit, be sure to thoroughly understand the associated interest rate as they can be onerous.
Additionally, both options are a great way to build your business credit profile. Having a stronger credit profile typically leads to a lower cost of borrowing and access to more capital.
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Still interested in learning more about securing a loan as an immigrant? Check out this helpful and in-depth Definitive Guide to Business Loans for Immigrants from Biz2Credit.
