Why Aren’t Female Entrepreneurs Getting Enough Capital?

Entrepreneur business woman working at her desk.

Here are four stories in the financial world that happened this past month and how they affect you. Did you catch them?

1. Female entrepreneurs are still not getting enough access to capital.

While the National Association of Women Business Owners holds its 2018 National Women’s Business Conference this week, a recent piece in The Hill by Bonnie Nawara (who is the board chair and interim president/CEO of the Association of Women’s Business Centers and runs a Women’s Business Center in Grand Rapids, Michigan) laments the lack of capital available to women entrepreneurs.

“While today’s landscape is more embracing of women, systemic gender bias and discrimination still exist, which makes starting and growing a business difficult,” she writes. “Research indicates that women start businesses with roughly half as much capital as their male counterparts; they receive just 2 percent of venture capital funds and less than 5 percent of conventional business loan dollars.” (Source: The Hill)

The Takeaway:

Nawara suggests that Congress should continue to provide funding for organizations that support female entrepreneurs and consider offering additional tax breaks and other incentives to venture capital firms “that achieve parity in funding levels for male- and female-led ventures.”

Her suggestions are right on point and while we’re at it, Congress should also consider similar breaks for other minority entrepreneurs who are also lagging far behind in getting access to capital. The playing field is not level and the opportunities to create jobs, expand the economy and provide livelihoods for struggling communities could be significant if women and minority business owners can get their hands on more funds.

2. Small-business borrowers are on the verge of consumer-style protections in CA

California is about to enact the nation’s first law requiring lenders to disclose interest rates in a way that enables small-business borrowers to compare multiple offers. This is in reaction to these business owners’ ongoing complaints that many high-cost loans from online lenders have misleading terms and put an unsustainable strain on their finances. The legislation, which would extend consumer-like borrower protections to small businesses, is designed to increase the transparency of financial products marketed to small firms. (Source: American Banker)

The Takeaway:

Let’s not fool ourselves, fellow small business owners: many of our businesses are…well…small. In fact, the great majority of the 30 million small business owners in this country only employ one person: themselves. So in effect, are we pretty much the same as a consumer and should we not be able to able to take advantage of some of the more important consumer credit protections? We’re not big enough to employ Chief Financial Officers, in-house attorneys or financing experts, so the more help we can get to protect ourselves, the better. Hopefully this move in California will be emulated across the country.

  1. Small Business Index shows access to capital is strong amid record high optimism

The end-of-August Q3 MetLife & U.S. Chamber of Commerce Small Business Index showed that nearly 70 percent of small business owners feel positive about their company and America’s small business environment. In the midst of this general optimism, access to capital is strong. However, it differs across all small businesses, with 23 percent of small businesses reporting that it is hard to obtain financing. (Source: Business Insider)

The Takeaway:

“After the 2008 financial crisis there was a decline in small businesses’ access to capital. Recently, Congress took steps to make it easier for small businesses to get capital,” Tom Sullivan, U.S. Chamber vice president of small business policy said. “We are moving in the right direction, but more policies that ease small businesses’ access to financing need to occur to ensure this vital sector of our economy continues to grow, create jobs, and positively impact communities across the country.”

Access to capital is certainly a lot easier than it was ten years ago (although not as easy for women and minorities as I write above) and even very small businesses with little financial history can get financing from online vendors and other sources…as long as they’re willing to pay the price of much higher interest rates.

4. IRS targets a potential tax break loophole

The IRS has proposed regulations that say it’s abusive for professional service providers such as law and accounting firms to use loopholes to take advantage of the 20 percent deduction in the new tax law. These firms have been using strategies such as splitting their businesses into different entities or combining multiple businesses into one to get around income limits set for pass-through businesses under the new tax law. (Source: Accounting Today)

The Takeaway:

People call it “crack and pack” (not kidding), but don’t fall for that scheme. If you are a service business, meaning a “trade or business involving the performance of services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, investing and investment management, trading, dealing in certain assets or any trade or business where the principal asset is the reputation or skill of one or more of its employees” (as very recently defined by the IRS), then you better be careful about splitting up your business to avoid the limitation on the pass-through deduction. Any companies with “common connections” would be treated as one entity for purposes of this deduction.

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Tags: Minority Owned Business