Business Loans for Immigrants: A Guide for 2020
Starting a business is a challenge for every kind of entrepreneur. It can be hard to come up with the resources and funds you need to start your business. 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.” Although it can seem like there are a lot of barriers for new immigrant business owners seeking funding, there are fortunately many options.
Standard term loans are available to new immigrant business owners, but they can be challenging to obtain
Credit unions and other financial institutions such as the bank where you have a bank account do still provide term loans (lump sum up front) to businesses but may have an arduous application process and may turn down businesses with a lack of sufficient history or collateral. Credit unions may be more flexible than traditional local banks. New immigrant business owners may find it easier and more flexible to secure short term loans (12 to 18 months) or business lines of credit for their business needs, although these loans can often have higher interest rates, which can make them less appealing. Short term loans can be especially useful for things like buying inventory, securing working capital, hiring initial staff, or doing an initial advertising campaign.
An Expert’s Advice: Business Loans For Immigrants
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 – a large majority of whom are 1st & 2nd generation immigrants, there are a few resources that new immigrants with their own business should be aware of when seeking out a loan. “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 loans and are options for permanent residents or working visa holders. They do, however, often have a lot of hurdles to jump through. You’ll need a credit history and business history to apply. This document on the SBA website (flip to page 110) details the rules that apply to immigrants who are applying for SBA loans. Another option Sahil mentioned are business grants. Open grants are available on Grants.gov. One thing to note is that grants are highly competitive. When we asked Sahil about what new immigrant business owners can do to make their loan applications more appealing to lenders, he had a few tips. “First, 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.”
A small business owner’s story about getting financing for his business
According to Akos Gabossy, CEO and Co-Founder of the Paniq Escape The Room Franchise, “it has been a huge challenge for us from day one to get any kind of bank financing. Even though we started our business 5 years ago and we have established more than 10 companies since then, traditional banks still can not help our business with a reasonable credit line or any kind of loan. This is why, we have to work with some innovative [online] lenders.”
The Online Marketplace May be a Better Fit for New Business Loans for Immigrants
Online lenders can provide more approval flexibility for business owners and typically have a faster approval process than brick and mortar banks. An ITIN or social security number (SSN) is almost always required. They can also usually get the money to you quickly. One consideration is that online lenders can sometimes have higher interest rates, but for certain business owners, the flexibility and speed may be worth it. Online loan marketplace Biz2Credit lends to new immigrant business owners. As long as the company is in the US, it can be evaluated for loan approval. However, the business owner will need to provide provide standard US-based details such as a FICO history and credit score.
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If you are just needing equipment to run your business, a special type of loan may be well suited to your needs: Equipment financing.
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 lender. 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 as much business or credit history.
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A few other funding options for new immigrant businesses include:
Personal savings
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 a new business.
Crowdfunding
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 in order to attract funders.
Friends + family
Friends and family can be a vital source of financial assistance for any entrepreneur, if they are an option. Consider seeking out friends and family (or asking them to introduce you to individuals who can help) to provide loans or investment in your business.
Business lines of credit or business credit cards
Business lines of credit or credit cards can be a great option, particularly for short term cash flow or start up fund needs. But be wary of high interest rates as they can be onerous.
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