Small Business Loans for Women: A Toolkit for 2017 (and Beyond)

Women entrepreneurs start more businesses than ever before, at a rate five times the national average since 2007. But they also start with less capital, grow more slowly, and stay smaller than men-owned businesses. Read on to understand more about the victories and challenges of female entrepreneurship and where to find sources of capital—including small business loans for women.

The State of Female Entrepreneurship

By many measures, women entrepreneurs are faring extremely well. The U.S. was ranked the top country for female entrepreneurs, according to both the Global Entrepreneurship and Development Institute and Dell’s Women Entrepreneur Index.

As women launch 1,100 companies every day, the number of women-owned businesses has climbed to over 11 million. In 2016, women were the majority owners in 38% of American businesses. These businesses bring in over $1.6 trillion in revenues every year. (Check out State of Women-Owned Business Report 2016 for more stats!)

Female entrepreneurs the U.S. find themselves in a very supportive environment and are experiencing unprecedented success. But they still face bigger barriers to success than men do. Access to capital is a prime example.

Obstacles to Financing

From the perspective of sheer numbers, women founders are doing great. But consider the following statistic: while revenues have been increasing, the percentage of the nation’s business revenues contributed by women-owned businesses has not changed in 20 years—remaining stagnant at 4%.

What causes the imbalance in revenue generation between women and men business owners? How they finance the launch and growth of their businesses is an important piece of the puzzle.

• Only 16% of small business bank loans go to women entrepreneurs.
• Women-owned businesses receive only 4.4% of the dollar value of all conventional small business loans. That’s $1 out of every $23 loaned.
• Women receive just 7% of venture capital.
• Just 39% of women trying to fund the expansion of their business receive a conventional loan, compared with 52% of men.

Keep in mind when looking at these statistics that women do not own as many businesses as men, and that women business owners don’t seek as much capital. Rather than outside financing, women tend to rely more on their own personal investments to start and grow businesses than men. Unfortunately, when they do seek loans, women entrepreneurs generally receive less money, pay higher rates, and put up more collateral than men.

Why do women end up self-financing or relying on informal methods? It depends on who you ask. Studies have identified multiple factors:

• Business size: Women-owned businesses tend to start and stay smaller than average. In fact, 90% of women-owned businesses have no employees beside the owner (compared to a national percentage of 80%). Small firms often have too little collateral and business history for bank lending.
• Motivations: In comparison with men, more women tend to become entrepreneurs in order to gain independence (rather than wealth). They also struggle more to balance family and business. The National Women’s Business Council suggests that these factors may affect their attitudes toward risk and growth.
• Business type: Women are underrepresented in venture capital firms and the fast-growth businesses they target.
• Underuse: Women who have equal access to capital tend to make less use of it than men.

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Small Business Loans for Women

Alternative lenders fill the gap left by conventional bank loans. Entrepreneurs who don’t want to give up a percentage of their business to investors, or compete with other businesses for limited grants, look to loans to grow their business.

There are many types of small business loans for women available, depending on your business’ background and needs. Here’s an overview of some popular options:

• Peer-to-peer (P2P) lenders: Peer-to-peer lenders connect borrowers and lenders, utilizing an online platform to facilitate the transaction. P2P lending cuts out banks, and allows individuals to fill the gap by providing capital. However, the lack of regulation has contributed to questions of integrity.
• Nonprofit micro-lenders: Micro-lenders offer loans which are geared towards start-ups or small businesses. Loans are less than $50,000—often times ranging between $500 to $35,000—and micro-lenders tend to be more flexible when it comes to less-than-perfect credit scores.
• Small Business Administration (SBA) loans: The Small Business Administration (SBA) doesn’t offer loans directly; instead, it works with banks to provide loan guarantees on behalf of business owners. This means the SBA promises to pay the bank a percentage of what you borrow if you default on your loan. The SBA tends to offer lower interest rates, however, businesses often wait six to eight weeks—or even longer—to get funded.
• Term loans: Taking on a term loan means borrowing a set amount of capital, and repaying it over time. A term loan is ideal for making an investment in an opportunity that will create a steady stream of cash in the near future—opening a new store, hiring a new employee, buying new equipment or developing a new product. The repayment period can be as short as three months or as long as five years, depending on the lender.  Bond Street, for example, offers 1- to 3-year term loans of up to $1 million.

Other Financing Options for Women

In addition to small business loans for women, here are three other types of financing that women looking for capital may not have considered before.

Grants

Women business owners willing to compete for grant money can enter for the chance to be awarded anything from $500 to $100,000 for business growth or education.

The Tory Burch Foundation provides the biggest grants specifically for women. They award $10,000 to managing owners of businesses between one and five years old, along with the chance to win another $100,000. Special grants also exist for socially responsible businesses (like Cartier Women’s Initiative Award) and creatives (like the #GIRLBOSS Foundation Grant).

See more opportunities in our blog post: Best Business Grants for Women.

Accelerators

Several companies offer mentorship, capital, and/or access to investors to specifically women entrepreneurs.

EY Entrepreneurial Winning Women™ is a program by Ernst & Young to help successful women-owned businesses scale. MergeLane is a startup accelerator for companies with at least one woman in leadership. WSLab emphasize coaching and leadership development for all-female and mixed-gender teams.

See more accelerators in our blog post: National Resources for Female Entrepreneurs.

Venture Capital

Venture capital is a famously male-dominated field. Only 10% of startups that raise Series A funding have female founders, with 95% of venture capital funding going to men-owned businesses.

But these statistics shouldn’t discourage women with high-growth businesses. Women venture capitalists are especially keen on funding women entrepreneurs. A venture capital firm with a women partner is twice as likely to invest in companies with female executive and three times as likely to invest in companies that have women CEOs.

Venture capital funds specifically for women-owned companies include the Female Founders Fund, Maya Ventures, SheEO, Astia, Plum Alley, and 37 Angels.