Minority business loans are financing instruments designed for specific segments of the population that include individuals from ethnic, nationality, or religious backgrounds, who’s businesses face unique needs and challenges.
Although minority business loans function as any other loan – with periodical interest payments and other traditional terms and clauses – they also take into consideration that minority-owned businesses usually struggle to meet the criteria established by regular lenders.
A study from the British Bankers Association found that minority-owned businesses are more likely to encounter difficulties in the process of applying for a business loan, while other studies have confirmed that minority business owners tend to rely more on “bootstrapping” - personal savings and hopefully the income from the first sales - to fulfill their company’s financial needs rather than applying for a loan.
With that in mind, some institutions have designed minority business loans as an alternative to clear the obstacles that these companies usually encounter by being more flexible on the minimum criteria and requirements set to apply for one.
How do minority business loans work?
Minority business loans have similar characteristics to traditional loans except for the fact that they may include some extra benefits like grace periods, lower interest rates, or longer credit periods.
The purpose of these advantageous conditions is to promote entrepreneurship among minorities in the country as a way to increase employment and to reduce the wealth gap that exists - sometimes inevitably - between individuals who belong to different demographic groups in the country.
Which groups are considered minorities in Mauritius?
The most important minority groups in Mauritius include Creoles, Chinese Mauritians, Franco-Mauritians, and Chagossians/Ilois, which account for roughly 0.2% of the population.
On the other hand, from a religious standpoint, Hinduism is the most widespread religious belief with roughly 50% of the population affiliated to that faith system, while Islam and non-Catholic Christians are considered minorities in the country.
Creoles and Ilois are commonly considered part of the country’s lowest social hierarchy, which would also make them eligible candidates for minority business loans.
Are there minority business loans available in Mauritius?
At the moment, there are no minority business loans available in Mauritius, but the government and other private associations do promote SME loans, which are specifically designed for small and mid-sized businesses regardless of the origin of their owners.
These loans offer advantageous conditions as long as the company complies with the criteria set by the government. These requirements include a minimum turnover between Rs 10 million and Rs 50 million during the last fiscal year for SMEs and less than Rs 10 million for microenterprises.
Additionally, the business must have at least one year in operation and, in some cases, collateral is also required to be granted with an SME loan. The interest rate applicable to these loans at the moment is 5.5%.
What to do before and after you have received a minority business loan?
If you are currently seeking to apply for a minority business loan or any other small business loan you should make sure your accounting records are up to date so you can present them to the financial institution or provider you will be applying with.
Additionally, experts recommend that you outline how you will be deploying these funds by drafting a business plan. This document will help you communicate your ideas to your prospective lender.
Once you have secured one of these loans you should keep track of your cash inflows and outflows to ensure you have enough money to meet the periodical financial obligations derived from the loan on time.
Finally, you should avoid deviating the funds for other uses as that could put some pressure on your business’ finances.
Government and private organizations around the world are paying more attention to the economic power that Black and Minority Ethnic Businesses have, and finally they are supporting them with easier ways of financing. In a time of need like the one we are facing right now, it’s important that every small business stays afloat and grows. If you’re a business owner, find the financing option more suitable for you.