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Business Loans for Women Entrepreneurs
Starting and running a successful business takes grit, determination, confidence, and skill. It also takes money. In today’s competitive business climate, it’s hard enough for anyone to start and operate a successful business. For many women, it’s harder than average.
There are many reasons for this, including bias (both unconscious and overt) in the world of venture capital funding and in conventional business lending. Another reason may be that women business owners don’t always have access to the information and tools they need to get the funds they require.
At Fundbox, we support business owners of all kinds. We believe that everyone should get a fair opportunity to achieve their dreams. Data-driven credit is one way that technological innovation can help us remove biases from the system that might otherwise make it harder for female entrepreneurs to succeed. One day, we hope those biases will be a thing of the past. Until then, we want to help female entrepreneurs to take advantage of every available opportunity that’s out there.
In this guide, we’ll look at the lending landscape for women business owners, the best business loans for women, alternative business funding sources for women, top business grants for women, and other organizations where women business owners can find more help and information.
Today, the 11.6 million businesses women own account for 39% of all U.S. companies. Together, these businesses employ 9 million people and generate $1.7 trillion in revenue each year. Over the last two decades, the number of women-owned U.S. businesses has increased at the impressive rate of 114%, compared to the national growth rate of 44%, according to the American Express 7th annual State of Women-Owned Businesses in the United States report.
Despite those tremendous numbers, there’s still a lot of room for improvement and growth toward equality between female and male business owners. While more and more women-owned businesses have emerged in recent years, these companies only employ 8% of all workers and are responsible for just 4.2% of revenues generated by U.S. businesses, according to the same report.
Why is that?
For starters, running a successful business is incredibly hard work. Not only do you need to provide beneficial products and services to your customers and deliver exemplary service in each interaction, you need to manage cash flow to pay for recurring expenses—and absorb unexpected ones.
This, of course, is much easier to do when there’s money in the bank. Unfortunately for many women entrepreneurs, securing small business financing is much harder than it needs to be.
In 2017, for example, all-female teams received only 2.2% of venture capital dollars; all-men teams received 16x as much money as women did. The numbers are even more discouraging for minority women-owned businesses, which were part of just 0.2% of VC deals that year.
While the percentage of VC money flowing to women is moving in the right direction—the figure was 1.9% in 2016—it’s still abysmally low.
The same holds true with traditional bank loans. Men have a better chance of qualifying for small business financing from a bank than women do. According to one study, men are 15%–20% more likely to be approved for a small business loan. Overall, women are less likely to receive anykind of business financing compared to men.
Suffice it to say there’s a lot of room to grow.
Though the current state of small business financing for women leaves much to be desired—and many banks and venture capitalists, statistically, may not be a viable option—there are still a number of small business loans for women. Here are five of them.
The SBA, through partnerships with financial firms, offers a number of small business loans for women. These loans—which are available to businesses that might not qualify for other forms of funding and are relatively hard to get—tend to have lower interest rates because the SBA puts a ceiling on how much money approved lenders can make off each loan.
For example, 7(a) loans that are over $50,000 with terms shorter than seven years can have a 2.25% maximum interest rate tacked on top of the prime rate. Loans that are over $50,000 but longer than seven years can have a 2.75% maximum interest rate added to the prime rate.
The Office of Women’s Business Ownership suggests successful applicants will need to submit:
Because a government entity is involved in the process, SBA loans can take quite a while to secure. If you need money quickly, this option probably isn’t for you.
Pros of Applying for SBA Loans:
Cons of Applying for SBA Loans:
Many states have local groups that are dedicated to supporting women-owned businesses. For example, Women’s Economic Ventures funds qualifying businesses based out of Ventura and Santa Barbara Counties in California.
Under this program, new businesses can secure between $250 and $25,000 if they’re approved while businesses that have been open for at least 18 months can qualify for up to $50,000 in financing. Money obtained through this program can be used to buy assets, make improvements to your office or store, and cover your operating expenses. It cannot be used to refinance unrelated debts, pay back taxes, buy real estate, or consolidate loans.
Applicants will need to pay a $35 or $50 application fee and, if approved, pay a 2% loan fee when the contract is signed. Interest will be assessed at a 10%–15% fixed rate. The average loan term is 3.5 years and there aren’t any penalties for repaying the loan in full ahead of its due date.
If you’re requesting more than $5,000, you’ll need to submit the following information:
If you’re requesting less than $5,000, you’ll need to submit everything but the business plan.
Don’t live in California? Not a problem. A quick Google search should help you track down similar groups that fund businesses in your area.
Pros of Working With Local Groups:
Cons of Working With Local Groups:
While men are more likely to secure financing from traditional financial institutions, banks still do lend money to women-owned businesses.
However, most small business owners who try to obtain financing from a bank usually end up spending a lot of time collecting requested documents and enduring a long application process only to have their application rejected. In February 2018, for example, big banks only approved 25.4% of the small business loan applications that came their way while smaller banks approved 49.2% of them.
To qualify for a bank loan, you’ll have to submit the usual documentation, including:
If you’re lucky enough to get approved for a bank loan, you’ll benefit from one of the more inexpensive forms of business financing available. Since there will be a fixed interest rate attached to your loan, you will know exactly how much money you need to repay each month; there won’t be any surprises. If you repay your installments on time, you’ll build up your credit score and cultivate a beneficial relationship with your banker.
In order to secure a bank loan, however, you’ll almost certainly have to put up collateral. This means that in the event business doesn’t go as you hope, you may end up losing property (e.g., a house or a car) to the bank as it recoups its costs.
Pros of Conventional Bank Loans:
Cons of Conventional Bank Loans:
Thanks to the internet, a number of peer-to-peer (P2P) lending platforms have emerged, including Funding Circle and Lending Club. P2P lenders act as a bridge between small business owners who need money and banks and investors who are willing to lend it.
Assuming your business is in good standing and has a solid credit score of 600 or higher, you should be able to find a P2P lender that’s willing to finance your business. P2P loans tend to be flexible by design; you can get a loan of anywhere between $2,000 and $1 million and you can have anywhere between one and 10 years to pay it off. Unlike other forms of financing, there usually aren’t restrictions on how P2P loans can be spent.
To secure a P2P loan, you’ll need to submit all of the relevant documentation that other forms of small business financing require: business information, tax data, financial statements, contact information, and more. Depending on the lender, you may have to meet certain requirements to obtain a loan. For example, a lender might only funds businesses that have been open for at least one year, have a credit score of 620 or higher and have generated $25,000 in annual revenue.
While P2P loans can be obtained in as little as two business days, the convenience comes at a cost. According to NerdWallet,loans from popular P2P lenders can carry anywhere between 7.4%–40% annual percentage rates. Lenders may also tack on other charges, too, like loan origination fees.
If you choose this form of financing, do your due diligence to make sure you know exactly how much money you’ll have to repay.
Pros of Peer-to-peer Business Loans:
Cons of Peer-to-peer Business Loans:
Women who are unable to secure small business financing from banks and other financial institutions aren’t completely out of luck.
Some of the more popular small business financing vehicles resourceful women rely on include:
In the event you’re unable to get approved for a loan—and the above options don’t sound too enticing—you may find an alternative lender is just the financial partner you need.
If you routinely wait for late payments but don’t want to give a factoring company a big slice of your profits, you may want to give invoice financing a try.
Fundbox is an alternative lender that specializes in invoice financing and makes getting the money you need to grow your business easier. Register, connect your accounting software and you could be approved for financing in under three minutes.
Here’s how it works: If you’re approved, simply select which unpaid invoices you want to advance payment on, within your credit limit. The full amount of the invoices can appear in your account in as fast as the next business day. You then have 12 or 24 weeks to repay the advance, plus a flat fee. If you repay your advance in full ahead of time, all remaining fees are waived.
Whereas most banks will primarily look at the personal credit score of the business owner, we consider several other factors to get a wider picture of business health when making credit decisions.
Pros of Working With Alternative Lenders:
Cons of Working With Alternative Lenders:
If you don’t want to pursue any of the above methods of small business financing, you may be able to secure the cash you need through several grants that are exclusively available to female entrepreneurs.
Grants are awarded by local, state, and federal governments, private foundations, corporations, and philanthropists. There are grants earmarked for all kinds of businesses, so with a little bit of research, you should be able to track down at least one or two of them that apply to yours.
The best part about grants is that, should you be lucky enough to win one, the funds you get are yours free and clear. Unlike loans, business lines of credit, or other forms of small business financing, you don’t have to repay any of money you’re awarded. When you win a grant, you also benefit from the prestige associated with it as well as the free publicity you’ll receive after you’re named the winner. Thanks to the internet, it should be relatively easy to figure out which grants are available to your business.
Grants, however, tend to be difficult to obtain in what’s usually a time-consuming, competitive, and research-intensive process. In some cases, you may have to cover application fees, too.
While some grants let you invest funds however you see fit, many of them require you to spend the money in very specific ways. Winning money is certainly nice, but it may not be too helpful depending on the needs of your business and the guidelines of the grant you win.
Grants can help you finance some of your operations for a period of time. Time will tell whether the grants you win are renewed or whether they disappear the following year. In this light, you can’t really rely on grants for long-term funding. Businesses that depend on grants may find themselves facing serious cash flow problems in the event a grant is shut down or another business wins it.
Top Grants for Female Business Owners
Some of the top grants available especially for female business owners include:
To learn about additional grants for women, browse this comprehensive database.
Pros of Financing with Grants:
Cons of Financing with Grants:
Want some more help and advice? Wondering what are some of the best professional organizations women business owners can turn to for information about loans and financing?
There are several organizations that help women business owners find the information and resources they need to succeed, including: