Women-owned businesses constitute a significant portion of all businesses in the U.S.—supporting their growth and financing is important for the overall economy.
But there’s an uneven financing of women-owned businesses compared to their male counterparts. While the need to provide equity financing to women-owned businesses is more widely known, it is just as important to focus on how to increase small-business loans to women entrepreneurs and business owners.
In order to provide more specific small-business loans to women entrepreneurs, one must first understand the barriers that women-business owners face in securing loans. The Federal Reserve Bank's Small Business Credit Report on Women-Owned Firms published November 2017 highlights some of the main challenges women face in securing debt financing:
- "Women-owned firms were also more likely to report higher credit risk, with 41 percent identifying as medium/high credit risk compared to 33 percent of men-owned firms."
- "Women-owned firms applied for credit at a similar rate as men; women-owned non-applicants were more often discouraged from applying and less likely to say they had sufficient financing than men-owned firms."
- "Women-owned firms utilize fewer types of debt and equity than men-owned firms, relying heavily on credit cards and Small Business Administration products."
- "Women-owned firms face persistent funding gaps and funding source mismatches, even when [they] have lower credit risk," according to the report. "Sixty-four percent of women-owned firms reported a funding gap, receiving only some or none of the financing sought, compared to 56 percent of men-owned firms."
Women entrepreneurs should have a clear understanding of the loan's interest rate, payback term, time to secure the loan and associated penalties.
Armed with baseline knowledge of the challenges that women-owned businesses face as it relates to debt financing, one now understands the need for small-business loans designed for women-owned businesses.
The following are several resources that can help women entrepreneurs seek effective lending solutions to meet their needs and desires:
Before seeking out specific loan products, entrepreneurs should connect with organizations focused on their success.
Whether entrepreneurs go to the Wisconsin Women's Business Initiative or the Women's Business Development Council in Connecticut, these centers are often home to women's business centers. The U.S. Small Business Administration funds these centers to explicitly foster the growth of women-owned businesses. Often, these centers provide education, training, business development and/or access to financing activities to women-owned businesses.
Finally, there are nonprofit organizations, such as Accion, Kiva or Opportunity Fund, that lend directly to small businesses. These organizations are also characterized as community development financial institutions, which lend to underserved communities, such as women business owners.
Online Marketplaces and Lenders
An internet search can yield multiple lending options targeted for women-owned businesses. Considering that online lending is a source for expedited financing for many entrepreneurs, it is important for women entrepreneurs to conduct their own due diligence on the various loan products and figure out if the loan option represents the best financing solution for their firm.
For instance, women entrepreneurs should have a clear understanding of the loan's interest rate, payback term, time to secure the loan and associated penalties. While some online lending providers market their products directly toward women, applicants should determine whether the lending option provides a true distinguishable benefit.
Finally, online loans are tempting because they offer quick access to financing, but female entrepreneurs should exercise extreme caution before securing these business loans.
Small Banking Institutions
Women-owned firms, according to the Federal Reserve Bank survey, are more likely to get approved for a loan at small banks (67 percent) than large banks (50 percent) and "report notably higher satisfaction levels at small banks (80 percent ) than either at large banks (55 percent) or at online lenders (48 percent)."
Overall, the above resources provide solid lending options for small-business loans designed for women entrepreneurs. Since women are increasingly harnessing their entrepreneurial spirit and creating new businesses at a faster rate than their male counterparts, the economy is well-served by having a financial system (and a corresponding support system) dedicated to facilitating their growth.
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