When you think about small company lending, what comes to mind? If you’re like most people, you probably consider the typical — banks, credit unions, online lenders. Unfortunately though, many business people cannot obtain the funding they require through these traditional lenders. Banks and credit unions, for example, may need high credit ratings, a lengthy amount of time in business, or any other criteria that the borrower just doesn't meet. The same can be said of online lenders — individuals with competitive rates might have strict borrowing requirements, leaving business people with options that are temporary, expensive, and could result in escalating debt — and eventual closure of the business.
Unfortunately, businesses in underserved communities probably know this all too well. Not only does a lack of funding opportunities impact businesses, but it also includes a negative impact on the city as a whole: Deficiencies in jobs, less use of services and products, and much less opportunities for entrepreneurship.
There is good news, though. You will find lenders and institutions that offer funding opportunities to businesses and entrepreneurs that don’t have other options. One option many are unfamiliar with is minority depository institutions, or MDIs. These institutions provide funding possibilities to many business owners who don’t have access to affordable funding elsewhere.
Sound like something which might be a good fit for the business?
Keep reading to learn more about MDIs, the way they help businesses like yours, and the way to pick which one is the best fit for your business.
What Are Minority Depository Institutions?
A minority depository institution (MDI) is determined in a single of two ways:
- At least 51% of voting stock is a member of minorities OR
- A majority of the board members are minorities And also the institution primarily serves communities whose populations are predominantly minority based.
Under the Financial Institutions Reform, Recovery and Enforcement Act of 1989, a minority is understood to be “Black American, Asian American, Hispanic American, or Native American.”
MDIs are similar to other banks, credit unions, and financial institutions by offering consumer and business services for example checking and savings accounts, personal and business credit cards, mortgages, and small company loans and contours of credit.
What May be the Minority Depository Institution Program?
The Minority Depository Institution Program is really a program launched under the Federal Deposit Insurance provider (FDIC). Goals of the program include preserving, promoting, and building capacity of MDIs for the benefit of low- and moderate-income communities.
The FDIC also oversees the Minority Depository Institutions (MDI) Subcommittee of FDIC’s Advisory Committee on Community Banking (CBAC) as a way of preserving and promoting the significance of MDIs in communities round the nation. This subcommittee serves as a platform for MDIs to collaborate, form partnerships, and promote guidelines.
In to become classified as an MDI, an institution must take steps by applying for deposit insurance as well as meet the requirements discussed earlier in this article. The FDIC provides a quantity of resources outlining the application process, rules, regulations, along with other critical information that financial institutions have to know about MDI designation.
How Minority Depository Institutions Help Small Businesses
There exist several ways in which minority deposit institutions help smaller businesses. Probably the most important ways that these financial institutions help smaller businesses is as simple as providing financial products that may otherwise be unavailable to low-income, moderate-income, along with other underserved communities. With access to funding opportunities, business owners can expand their businesses, receive funding to have their business in operations, and begin new businesses. This, in turn, results in job opportunities and use of products and services to everyone within that community.
Some of the ways that MDIs help business owners include:
Small Business Loans
Affordable loans with favorable terms take time and effort for many businesses to attain, but it can be nearly impossible for businesses in underserved communities. Fortunately, MDIs have financing opportunities for smaller businesses that find it difficult to get low-cost funding elsewhere.
Depending around the institution, there are a number of loan products available. This includes commercial real estate loans, equipment financing, or other loans that provide businesses with a lump sum payment of capital that’s repaid over time.
Many MDIs offer loans backed by the Sba. SBA loans provide high borrowing limits, long repayment terms, and competitive rates of interest. Some MDIs may also offer lending options for startup businesses that don’t possess the revenue or business credit score required for other loans.
Lines Of Credit
Businesses that are looking a far more flexible financing option may be eligible for a a credit line through an MDI. Instead of a lump sum, companies are given a credit limit you can use to pay employees, purchase supplies or inventory, or cover operational costs. As the credit line is repaid, funds become available to use again, much like credit cards. A business line of credit is great to need to cover unexpected expenses in order to manage cash flow issues.
Business Credit Cards
Many MDIs offer business charge cards to qualified borrowers. Just like a credit line, this can be a flexible form of funding that can be used for anything from emergency expenses to recurring costs like bills or gas for an organization vehicle.
Merchant Card Services
Businesses that are looking to accept credit cards, an atm card, along with other types of payment will need to find a merchant services provider. Some MDIs provide these types of services for his or her customers.
Payroll
Businesses with employees need to run payroll, and lots of business owners opt to leave this towards the professionals. Many MDIs — like traditional banks and credit unions — offer payroll services because of its small company customers.
Checking & Savings Accounts
Business owners should understand the importance of separating business and personal expenses. The simplest way to do this is as simple as keeping funds in separate accounts. An MDI provides personal and business bank accounts, so that you can keep the money separate. You won't just (or your accountant) appreciate separate accounts come tax time, but many lenders need you to possess a business bank account before disbursing loans or any other funding.
Personal Banking Services
Looking for a new lender for your personal accounts? Consider working with an MDI. Not only can you are taking benefit of these consumer financial products, but so can others in your neighborhood. What am i saying for the business? It means that customers get access to accounts, charge cards, and loans — quite simply, all kinds of funding that they may spend in your business.
Popular Minority Depository Institutions
Now that you have a general concept of what MDIs offer, let’s take a closer look into what to expect when working with an MDI. These are just a number of the 150+ MDIs through the nation, plus they were put to use with this post because of their years of success, a range of lending options and services, and the work they have done inside their respective communities.
First Independence Bank
First Independence Bank is really a Black-owned MDI that provides lending options and services to the people and businesses within the Detroit Metropolitan area. This institution premiered in 1970 and has helped businesses of any size meet their financial goals with products for example real estate loans, term loans, SBA loans, and secured credit lines.
First Independence Bank is also most owner of MAC Leasing, a certified minority-owned equipment leasing company. Along with its MDI status, First Independence Bank also meets what's needed for classification like a Community Development Financial Institution (CDFI). It's also a professional Minority Business Enterprise (MBE). First Independence Bank has won numerous Bank Enterprise Awards throughout the years because of its role in providing financial products and services to distressed communities.
American First National Bank
American First National Bank is definitely an Asian American-owned MDI that serves businesses and consumers throughout communities in Texas, Nevada, and California. Launched in 1998, this lender is continuing to grow to possess total assets of nearly $2 billion.
In addition to being Asian American-owned, most employees within American First National Bank are also Asian American. Many employees speak multiple languages, providing them with the opportunity to serve a number of different customers in their native languages. American First National Bank has several financial products aimed toward smaller businesses, including capital loans, startup loans, and equipment loans.
This MDI can also be very active within its communities, even offering speakers to speak about the financial institution and its services at schools, local businesses, and civic organizations.
Golden Bank, National Association
Golden Bank was established in 1985 and was the first minority-owned bank within the Greater Houston area. Today, the bank has expanded for everyone customers in cities in Texas and California. This Asian-owned lender provides a number of business services, including loans, deposits, cash management, and trade finance. Golden Bank even offers payment processing without any startup fees and a free terminal.
Golden Bank recently has been named a Five-Star Bank by Bauer Financial. This is the highest ranking in banking industries.
How To obtain the Right Minority Depository Institution For the Small Business
Is your company located in an underserved community? Do you want help with funds for starting your business, or maybe you’re already in business and want capital for expansion? In case your business is located in an underserved, distressed, low-income, or moderate-income community, you may take advantage of the services and products provided by an MDI. Or maybe you just want to bypass the big-name banks and obtain a more personalized experience with a smaller, local institution — in which case, an MDI will do the job.
Now, the next step is to obtain the right MDI for your business. Your business is unique and they are its financial needs. What works for just one business may be a total mismatch for yours. To determine what MDI may be the right fit for you, consider the following:
- Location: Unlike major banking institutions that have hundreds (or thousands!) of branches nationwide, MDIs have far fewer branches and serve a far more targeted area. Ensure that the MDI you decide on has branches and surcharge-free ATMs which are convenient to your business.
- Eligibility: Some MDIs are lending institutions which have membership requirements. This could be everything from a small monetary donation to living, working, or attending school inside a specific area. Ensure that you meet all requirements prior to signing up.
- Products & Services: Do you need industry-specific lending options? Is there a specific type of loan or borrowing limit that you'll require for the business? If that's the case, ensure that the MDI you select offers the products you need, plus other services and products your business may need in the future.
- Up-to-Date Technology: Most business people don’t have hours to walk into a branch or sit inside a drive-through line for every single transaction. Look for MDIs that provide internet banking services like access to your accounts, mobile services, bill pay, and online loan applications.
Also, FDIC-insured MDIs offer you protection you'll need when the institution fails. You’ll have up to $250,000 insured, so you won’t have to worry about losing your hard-earned money.
Unsure of where to start your search? Browse the FDIC website, or review the list of MDIs supervised through the Office from the Comptroller of Currency (OCC) to get started.
Learn About Other Financing Helpful information on Businesses
Smaller financial institutions like MDIs aren’t for everybody, and it’s important to always explore your choices first before diving headfirst into small business financing. While MDIs may be on your list, make sure to compare and weigh other options. This includes using a traditional bank or credit union, comparing rates with internet lenders, or working with an SBA-approved lender to obtain a low-cost SBA loan. You can even use your personal credit profile and income to qualify for a personal loan for business. Regardless of which choice you make, spend some time, seek information, and make the option that’s perfect for your company. Best of luck!
