Women own nearly 1 in 3 small businesses in the United States, which equates to around 10.6 million female-run companies and accounts for over $1.3 trillion of revenue and the employment of nearly 8 million workers.
Yet this significant amount of female entrepreneurs is not reflected in business lending. According to the Federal Reserve, female-owned businesses are less likely to receive financing than male-owned ones.
There are numerous reasons for this; female entrepreneurs are offered smaller loans and higher rates, they’re taken less seriously, and they generally have lower credit ratings which impact their ability to get a loan in the first place.
Let’s face it: there are many obstacles getting in the way of female entrepreneurs or women looking to grow their businesses to the next level.
Yet women have also made huge strides in the business world.
Plus the increasing awareness around gender issues has shed light on the funding gap for female entrepreneurs, and many resources have been set up to help plug this gap, such as the government-backed Women’s Business Centers and a range of other business loans.
Frustratingly, most lenders require a track record of strong finances, a solid business plan, and an ability to repay what you owe. However, this doesn’t mean it’s impossible. There are a few different options when it comes to finding a business loan to fund your start-up.
There are a range of business loans that women can apply to, including:
- SBA loans - these require you to have solid finances and an established business, and are offered by banks, online lenders and other financial institutions which are backed by the U.S. Small Business Administration. In the fiscal year 2020, women who own more than half of a small business received 14%, or $1.1 billion, of the SBA.
- Bank business loan - these typically have the lowest interest rates but the toughest eligibility criteria. According to the Federal Reserve, in 2016, large banks approved 50% of women-owned business applications while small banks approved 67%.
- Online loans - If you have a lower credit score (between 300 and 689) or have been in business for under two years, you may be more limited in your options, however, you could consider applying to an online lender.
Online lenders offer multiple loans and specialize in quick funding. They’re also known for having looser eligibility qualifications than banks, however, this is likely to result in higher borrowing costs.
- Microloans - If you have a small financing gap, or you don’t qualify to borrow from a bank or online lender, you could consider a microloan.
The SBA offers microloans through nonprofit organizations such as Grameen America, which provides $2,000 to $15,000 to entrepreneurial women living in poverty, while other SBA microlenders may offer more substantial amounts of up to $50,000.
If you have good personal credit, you may qualify for a personal loan for business. These are usually unsecured, and some go as high as $100,000. Another option for financing a female-owned business is through business credit cards.
If you can’t apply for a loan, you may be eligible for free funding in the form of a grant issued by a government agency or nonprofit organization.
The SBA runs something called the Women-Owned Small Businesses Federal Contracting Program, which is designed for women-owned businesses that are interested in government contracts.
The SBA also runs a Business Development Program, which allows all “socially and economically disadvantaged people or entities”, including women, to compete for set-aside federal contracts to help fund and develop their businesses.
How do I apply for a female entrepreneur loan?
As well as business and personal loans, there are also schemes set up by the government and nonprofit organizations that offer free assistance to female entrepreneurs.
If you’re just starting out, and you’re lacking the financial track record required to get a business loan, you could consider applying for an entrepreneur loan and making use of a range of government resources to help you get one.
The programs found at government-backed centers and schemes are designed to help women carry out the steps required to get a loan, for example, by helping them write up a business plan, and providing guidance on topics like starting a business, financial management, and marketing your business.
In the U.S. there is a network of over 100 Women’s Business Centers which are set up to help women start-up businesses.
These centers are funded by the SBA, and usually run seminars and workshops on a range of helpful topics, including how to start a business and get financial support.
There are also tools such as Ascent, which was recently launched as part of a joint initiative between the White House, SBA, the U.S. Department of Labor’s Women’s Bureau, and the U.S. Department of the Treasury.
Ascent is a website that offers a range of learning resources designed to help female entrepreneurs start and grow their businesses.
Is it easier for a woman to get a small business loan?
It’s definitely not easier, and don’t be fooled into thinking this just because of the amount of female-focused business initiatives that have been set up. While women own 30% of small companies, they account for less than 5% of capital lent to small businesses.
That’s according to findings from the Senate Small Business & Entrepreneurship Committee, who also found that women-owned small businesses receive just 16% of all traditional small business loans, and that female applications were more likely to be rejected, or be subject to more stringent terms than their male counterparts.
Women also receive just 7% of all capital funded by venture firms. So, while these initiatives show some steps towards equality, there’s still a very long way to go.
Obstacles facing women applying for business loans:
Women are turned down more
- According to Fundera, small businesses owned by women are approved at a rate of only 32% - a full three percentage points lower than approval rates for male-owned small businesses.
Women are subject to higher fees
- While women not only receive less and get offered smaller loans than men, those women who do secure financing are more likely to receive a shorter-term loan with less capital yet significantly higher interest rates.
Women tend to have lower credit scores
- According to Fundera, there’s a 15-point difference between the average credit scores of men and women.
Credit score is the single biggest driver of a loan’s APR, and can also determine a person’s financial eligibility, which explains why women-owned businesses are getting smaller, yet more expensive, business loans.
- It’s likely that these lower credit scores are driven by the gender wage gap, which is likely to contribute to disproportionate debt-to-income ratios and credit utilization between men and women.
Women-owned businesses make less
- On average, businesses owned by women make 30% less annual revenue than those owned by men, which is another factor that weighs in on credit eligibility.
- Female-owned businesses have poorer access to credit, which may result in them being less able to grow and develop.
Women ask for less
- According to Fundera’s research, women ask for $89,000 in debt financing on average, compared to the male average of $124,500, which results in a difference of about $35,000.
Women are taken less seriously
- This is a sad reality in the business world, which can be pretty archaic and misogynistic still.
- A report conducted by Babson College and Bank of America found that female business owners felt they weren’t taken seriously, with many having to navigate significant gender-related obstacles in order to succeed as prominent business leaders.
While the odds of getting a business loan may seem to be not in your favor, we can assure you that things are getting better in the business world, even if there is a significant way to go until equality is achieved.
The good news is that there are many resources and government-backed schemes available to provide information and training that could boost your chances of being given a loan, and there are also grants that may be available too.
Utilizing these programs and resources can help you strengthen your business plan, which could help you get capital for your business.