or thirteen years, Purrfect Purr Cat Hotel has offered pet sitting and boarding services for felines in Anchorage. Guest pets can indulge in a variety of activities, including socializing with other fur babies in a stimulating and safe environment. The facility provides the cats with constant observation, high-quality food, plenty of space to lounge and play, and even a trip to the vet if they get sick. “We provide everything; you just drop the cat off,” says owner Elaine Parry, a Navy veteran and former air traffic controller.

For Parry—who has always loved cats—operating Purrfect Purr Cat Hotel is a labor of love. But in 2020, the successful enterprise was threatened when the COVID-19 pandemic forced non-essential businesses to temporarily close. Purrfect Purr Cat Hotel was shuttered for two months, and it nearly devastated the business. To stay afloat, Parry applied for a loan from a local credit union, which proved to be extremely problematic. The problem wasn’t a lack of creditworthiness on her part, according to Parry. She owned her own home, had ample retirement income, and even offered to collateralize the requested $45,000 loan with her rental property, a condominium worth $98,000 and owned free and clear. But her loan request with the credit union was unfruitful. “They really treated me poorly,” says Parry, a thirty-year Alaska resident. “They didn’t refuse the loan; they just drug it out, dropped me, and wouldn’t respond anymore… I had to file a complaint against them.”

Ultimately, Parry was able to obtain a $37,000 Economic Injury Disaster Loan, which she used to pay her lease, employee, and other expenses. “Between that and my own personal funds, I managed to stay open,” she says.

Parry’s experience is an example of the challenges some minority business owners face while pursuing financing to launch, maintain, or grow their business. However, minority business owners—which include women as a minority group due to their relative disadvantages—play a vital role in supporting the US economy. In 2019, almost 19 percent of all US employer businesses (1.1 million) were minority-owned and about 21 percent (1.2 million) of all businesses were owned by women, according to the US Census Bureau’s 2020 Annual Business Survey.

Businesses that are owned by women and other minority groups—including Blacks/African Americans, Asians, Hispanics, Alaska Natives, Native Americans, Native Hawaiians, and other Pacific Islanders—employ millions of workers and generate billions of dollars in annual payroll and receipts. According to the survey, their 2019 annual receipts were $874.6 billion for Asian-owned businesses, $463.3 billion for Hispanic-owned companies, $133.7 billion for Black- or African American-owned enterprises, $35.8 billion for American Indian and Alaska Native-owned businesses, and $8.5 billion for Native Hawaiian and Other Pacific Islander-owned businesses.

Despite their substantial economic impact, it is often more difficult for companies that are owned by minority groups to satisfy their business capital needs. That’s why it’s essential for minorities—and other socially and economically disadvantaged entities—to have access to sufficient funding and support through government-backed loans, traditional bank financing, and creative funding options.

The US Small Business Administration (SBA) is a primary facilitator of funding for minorities and other disadvantaged groups. The SBA provides loan guarantees that strengthen loan requests and makes it easier for business owners to gain funding approval. These loans typically give borrowers the benefits of having a lower down payment, favorable interest rates, and longer repayment terms. Some of the primary SBA loan programs are:

• 7(a) Loans: These are the most popular financing option offered by the SBA. 7(a) loans are available to all small business owners seeking up to $5 million in financing and come with long-term repayment plans and low interest rates. According to the SBA, 32 percent of 7(a) loans are provided to minority-owned businesses.
• Community Advantage Loans: Community Advantage Loans are designed to help businesses in “underserved markets,” meaning low-to-moderate income areas, rural regions, or veteran-owned business ventures. These loans can cover $50,000 to $250,000 in financing for an operation and come as term loans with fixed repayment plans and either fixed or variable interest rates.
• Microloans: SBA microloans offer up to $50,000 in business capital to qualifying owners, typically with a six-year repayment plan. While SBA microloans are technically available to all business owners, these funds are distributed nationwide through various nonprofits, many of which are geared toward supporting underprivileged businesses.

SBA loans are available from a variety of participating lenders throughout Alaska. Northrim Bank, for example, is an active SBA-approved lender in the state. Northrim was honored as the 2020 SBA Alaska Lender of the Year by the SBA Alaska District Office. “This award recognizes Northrim Bank’s commitment to providing financial assistance to Alaska’s small business owners, which resulted in the approval of seventeen SBA 7(a) loans totaling over $4 million during the federal fiscal year ending September 30, 2020,” an October 18 press release stated.

Northrim also provides SBA Express loans, which offer applicants an expedited, streamlined process. Business owners can borrow up to $350,000 as either a term loan or line of credit that they can use for various business purposes. Because the SBA guarantees 50 percent of the loan amount to third-party lenders, this loan may be the best option for business owners who do not meet the lending criteria of traditional financial institutions or who are lacking in credit history.

Northrim Bank is also a performance lender for Bureau of Indian Affairs (BIA) loans. BIA loans, which provide lenders with a 90-percent guarantee, can be utilized in many ways. The maximum loan size is $500,000 for individuals and up to $5 million for businesses. To be eligible for a BIA loan, at least 51 percent of the business must be owned by a federally recognized tribe or Alaska Native group; a member of such a tribe or group; or an Indian-owned corporation, partnership, or cooperative association. However, the management of the company is also a critical factor with the BIA program, says Allen Hippler, vice president of commercial lending at Northrim. “For BIA, if you have a married couple and one is Native and one is not, you don’t just automatically qualify—unless the spouse who is Native is heavily involved in the business. Both the ownership and management must be Native,” Hippler says.

Wells Fargo is also an active SBA-approved lender in Alaska. “As a leading SBA lender, and a national SBA Preferred Lender, Wells Fargo offers SBA 7(a) and 504 loans to creditworthy small business owners who may not be able to obtain a conventional loan or loan terms that meet their business needs,” says Wells Fargo Alaska Region Bank President Greg Deal.

SBA 504 loans, which are open to a variety of individuals, are intended to provide financing for the purchase of real estate, equipment, and other fixed assets. These loans are appropriate for longer-term financing for businesses with net worth below $15 million and an average net income below $5 million. Terms are up to twenty-five years for commercial real estate and up to ten years for machinery or equipment.

Most lenders strive to take an unbiased approach to reviewing loan applications, whether from minority-owned businesses or otherwise. “We look at all businesses the same way,” says Hippler. “The only difference would be if we are able to apply a special program.”

In such cases, the lender will scrutinize the ownership and management of the business. With SBA and BIA loans, for instance, the bank needs to know who owns exactly what and who manages the company. “And if the company changes ownership, it needs to make sure the new ownership and management qualify with SBA and BIA regulations,” Hippler says.

The key challenge many new businesses have—and the main consideration for lenders—is a lack of capitalization, but it’s crucial for business owners to have some money available to support their project. “They need to able to show they have saved money to invest the business,” he says.

What can minority business owners do to better prepare themselves to secure capital? In general, Hippler says, they need a solid business plan, financial statements that make sense, and money saved for the capitalization of the project.

Deal emphasizes the importance of developing a strong credit application. When preparing an application, entrepreneurs should consider these four factors: credit purpose, credit history, company finances, and accurate documentation. “When you apply for credit, the financial institution will want to know how you plan to use the money you borrow,” he explains. “Whether it’s for equipment or inventory, you should have a clear understanding of why you need credit.”

Before making a credit decision, the lender will pull reports to review the applicant’s personal and business credit history. Recent credit inquiries and interest-only mortgages may also affect a lender’s credit decision. “This information will help lenders determine whether you are a responsible borrower,” Deal says. “If you have a weaker personal or business credit report, take steps to improve it. For example, you may want to accelerate paying down your existing credit or set up automatic payments to reduce your risk of late payments.”

The company’s cash flow also plays a key role in the owner’s ability to get approved for credit. Lenders will look at how much revenue the business generates to ensure it can repay any additional debt. A lender may also request collateral that could come in many forms, such as business equipment or real estate. “Make sure your company’s financial data is accurate before submitting your credit application,” Deal says.

In addition, the loan application should be complete and error-free. Before submitting it, the applicant should confirm the accuracy of key information about the business:

• date of establishment
• full annual earnings
• name and address from the articles of incorporation
• ownership information

In addition to loans, there are various other types of assistance that minority groups can take advantage of to support their business. The SBA, for instance, offers the 8(a) Business Development Program to give minority and underprivileged business owners a better chance at receiving federal contracts and funding. Unlike 7(a) loans, the 8(a) Business Development Program does not offer financing; rather, it provides a preferential status that gives owners an in-road to obtaining SBA loans and other federal aid they might otherwise have difficulty receiving. To qualify for the program, the business needs to be majority-owned by an individual who is socially or economically disadvantaged, has a net worth of less than $250,000, and is involved in the day-to-day management of the business.

“Nationwide and globally, it has been utilized with great success by Native corporations,” Hippler says. “8(a) is a strong factor for minority- or women-owned businesses because it allows us to help with their financing, which can help get them projects more easily.”

As another non-loan option, Wells Fargo offers grants and mentoring to help various minority groups enhance their business. According to Deal, racially and ethnically diverse and women-owned businesses have been disproportionately affected by the COVID-19 pandemic compared to other small businesses. In an effort to foster an inclusive recovery from the COVID-19 pandemic and other systemic challenges, Wells Fargo is expanding its resources for diverse and women-owned businesses. These efforts include funding from its Open for Business Fund, which is aimed at providing entrepreneurs with access to experts that can help grow their businesses, and its Connect to More initiative that focuses on mentoring women-owned businesses.

Launched in July 2020, the Open for Business Fund provides grants to nonprofits that help small businesses stay open, maintain jobs, and recover from the economic effects of COVID-19. It was created as a unique way for Wells Fargo to donate the gross processing fees generated from its participation in the SBA-administered Paycheck Protection Program in 2020. “We are one of the only major banks to donate all fees back, without subtracting costs or expenses,” Deal says.

The nonprofits selected to receive Open for Business Fund grants range from universities and local chambers of commerce to economic development funds that focus on small businesses hardest hit by COVID-19, including those owned by Black/African Americans, Hispanics, Asians, Native Americans, women and others. Beyond providing much needed capital, the Open for Business Fund also empowers small businesses with technical assistance and long-term resiliency programs. “The pandemic made it clear that capital is only part of the answer to an inclusive long-term recovery for the small business community,” Deal says. “We believe there is growing need for entrepreneurs to have access to trusted experts who can help them solve business challenges, plan for the future, and grow.”

As of August 2021, Wells Fargo had distributed more than $305 million in Open for Business Fund grants to nonprofits that have enabled 148,000 small businesses to stay open, maintain jobs, and recover from the economic effects of COVID-19, according to Deal. More than 80 percent of those served are Black/African American, Hispanic, Native American, Asian, and other diverse small business owners. “In Alaska, Wells Fargo awarded Open for Business Fund grants totaling $1.6 million to Spruce Root, Cook Inlet Lending Center, and Anchorage Community Land Trust to provide small businesses in underserved communities with greater access to low-cost capital and free training, technical assistance, and recovery resources,” he says.

The funds from Wells Fargo were used in a wide variety of ways. They supported Spruce Root’s products and services for entrepreneurs including recovery grants, microloans, and ongoing virtual workshops—such as “Path to Prosperity Master Class for the New Economy” and “Path to Prosperity Business Basics.” Open for Business Funds helped Cook Inlet and Anchorage Community Land Trust expand the reach of the Set Up Shop program, an initiative that provides a pipeline of training, technical assistance, microlending, and real estate support to entrepreneurs in underserved communities of Anchorage. “There are very few nonessentials when starting up a business.” Deal says. “We see everything from technical assistance to acquiring assets and property as vital elements in the long-term success of small businesses, which is why the Open for Business Fund is focusing on these areas of support.”

In addition, Wells Fargo announced Connect to More in August 2021 to offer a new wave of support focused on mentoring 500 women-owned businesses. Deal explains, “Over the past five years, the number of women-owned businesses increased 21 percent while all businesses increased only 9 percent, yet in 2018 the average loan size for women business owners was 31 percent lower than it was for male business owners.”

Connect to More is an important step that Wells Fargo is taking to provide specialized resources and mentorship support for women to continue to empower them with the knowledge they need to make decisions for their businesses and their future. The program provides women business owners access to several resources—articles, videos, and worksheets—designed to guide them as they travel through the business cycle. It also gives them access to “Milestone Mapping Coaching Circles,” a twelve-week program in partnership with the Nasdaq Entrepreneurial Center, where women entrepreneurs gain access to a group of peers and a mentor to set milestones specific to their business and solve common business challenges.

Deal adds, “With traditionally less capital and fewer resources to endure a disruption as unexpected and prolonged as the pandemic, ‘staying open’ has taken on new meaning for the nearly 13 million women small business owners in the United States. At Wells Fargo, we recognize the value and importance of these women and their business endeavors, but know they need more to survive and thrive.”