A guide to business financing and 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 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 state of funding for women-owned businesses
Today, the 11.6 million businesses women own account for an estimated 42 percent 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 most recent American Express 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 percent of all workers and are responsible for just 4.2 percent 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, but you also 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 2021, for example, all-female teams received $6.4 billion out of $330 billion U.S. venture capital (VC) funding, representing just 2 percent of all U.S. venture capital dollars.
While the percentage of VC money flowing to women is slowly 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 20 percent more likely to be approved for a business loan. Overall, women are likely to face more obstacles for any kind of business financing compared to men.
Suffice it to say there’s a lot of room to grow.
What are the best business loans for women entrepreneurs?
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.
1. Loans from the Small Business Administration (SBA)
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 percent maximum interest rate tacked on top of the prime rate. Loans that are over $50,000 but with a term greater than seven years can have a 2.75 percent maximum interest rate added to the prime rate.
The Office of Women’s Business Ownership suggests successful applicants will need to submit:
A solid business plan
A detailed credit report
A plan for how you’ll use the money you’re requesting
A forecast of your financial projections
A personal guarantee or collateral (in most cases)
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:
Financing for businesses that struggle to get funding
Relatively low interest rates
Flexible loan sizes and terms
Cons of applying for SBA loans:
May take a long time to secure
Difficult to qualify for
Collateral or personal guarantee is required
2. Loans from a local female-centered group in your region
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 up to $25,000 if they’re approved, while businesses that have been open for more than one year can qualify for up to $150,000 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.
If approved, applicants will need to pay a 2–3 percent loan fee when the contract is signed. Interest will be assessed at an 8–10 percent fixed rate, and the loan term is up to 5 years (for loans up to $25,000) and 7 years (for loans up to $150,000).
In each case you’ll need to submit a business plan and other documentation in support of your application
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:
Financing for women-owned businesses
Can use the funds several ways
No early repayment penalties
You have enough time to pay it back
Cons of working with local groups:
Dependent on location
There may be several fees tacked on
Loans might not be big enough
You’ll have to submit a lot of documents and information
3. Loans from traditional banking institutions
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. For example, statistics for 2021 show that big banks only approved 13.8 percent of the small business loan applications that came their way, while smaller banks approved just 19 percent of them.
To qualify for a bank loan, you’ll have to submit the usual documentation, including:
A business plan
Personal and business tax documents
Personal and business bank statements
General business information
A detailed credit report
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 (for example, a house or a car) to the bank as it recoups its costs.
Pros of conventional bank loans:
Low, fixed interest rates
Build business credit by repaying on time
Develop a relationship with a banker
Cons of conventional bank loans:
Difficult to qualify for approval
Long application process and slow funding
Likely have to put up collateral to secure
4. Peer-to-peer business 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 in amounts ranging from $2,000 to $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 fund 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 from 7.4–40 annual percentage interest 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:
Relatively easy to obtain
Flexible terms and loan amounts
Can use the money how you see fit
Cons of peer-to-peer business loans:
Can have high interest rates and other fees
New businesses may not qualify
May have to meet certain requirements (for example, revenue or credit score)
What are some other popular financing options for women business owners?
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:
Have enough money in the bank to fund your business out of your own pocket? Then you might want to finance your own operations through a process called bootstrapping, which enables you to maintain full ownership of your company without taking on debt. That may sound reasonable, but what happens if you fail? Unless you have endless resources, bootstrapping often requires settling for cheaper options (for example, labor and supplies) — which could end up costing even more down the road if things don’t work out.
Selling equity to investors
Do you need advice on how to run your business? If so, it may make sense to sell some equity to an investor. You won’t have to take on any debt or repay any monthly installments, and you may end up with a skilled business partner who can help you take your company to the next level. Finding the right partner, however, can be an incredibly time-consuming process. You’ll end up with less control over your company and you’ll have to share your profits, so choose wisely.
If you need money for your business, you can always hop on a platform like Kickstarter or Indiegogo and give crowdfunding a try. If your campaign succeeds, you’ll get the money you need to fund your operations without taking on debt or selling equity. You may also generate a ton of free publicity. Crowdfunding, however, is not without its risks. Successful campaigns usually require a lot of time, energy, and money. Credit card companies and crowdfunding platforms will take a slice of your haul, too, and you never know if someone might see your idea and try to copy it.
Business lines of credit
A business line of credit gives you access to the money you’re approved for on an as-needed basis. For example, if you have a $50,000 credit line, you can withdraw as much as $50,000 as you need it. Take out $1,500, for example, and your line shrinks to $48,500 until you repay the $1,500, plus interest. Business lines of credit are relatively quick and easy to obtain. On the flip side, they tend to have very high interest rates and often require a hard pull of your credit and a personal guarantee. In the event you max out your credit line and can’t repay, you may end up worse off than you were before.
Merchant cash advance (MCA)
If your business finalizes lots of credit card transactions, you may qualify for a merchant cash advance. Under this financing mechanism, you’re given money up front (for example, $30,000) in exchange for a fixed percentage of your future credit card receipts (for example, 15 percent). The MCA provider then takes 15 percent of your credit card sales every day until the debt, plus fees, is fully repaid. MCAs are relatively expensive; annual percentage rates can stretch as high as 60–200 percent. This form of financing is one of the easiest ones to qualify for. Beware, though, that a merchant cash advance is unlikely to solve long-term business problems.
Is your business sitting on a lot of unpaid invoices? You can always opt to sell them to an invoice factoring company at a discount in exchange for immediate cash. Factoring enables you to get the cash you need without having to track down payments from your customers — giving you more time to focus on other more important business needs. This form of financing, however, tends to be quite expensive; you may have to give up as much as 20 percent of your receivables to get money. Additionally, since factoring companies collect payments directly from your customers, clients may find out you’re struggling financially and decide to do business elsewhere.
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.
Why women business owners might want to choose an alternative lender
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 as soon 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:
Get the full value of your invoices
Transparent fees (some can be waived if you repay early), and in some cases, as with Fundbox, flat fees only
In some cases, no personal credit check is required
Cons of working with alternative lenders:
Requires a healthy history in your accounting software, which newer businesses may not have yet
Might need specific accounting software or a business bank account
What grants are available for women-owned businesses?
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 the 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. As such, 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:
The Amber Grant: The yearly Amber Grants have supported female entrepreneurs since 1998. The grants range from $2,000 to $25,000 and total $450,000 each year.
The Halstead Grant: Available for jewelry artists who work in silver, the winner of the Halstead Grant is awarded $7,500 in cash, $1,000 in merchandise, feedback from a judging committee, and the recognition that comes with the achievement.
The Patrina Foundation: Since 1990, the Patrina Foundation has awarded more than $9 million to nearly 450 nonprofit organizations that are working to make the world better for women and girls. Grants are available to fund startup organizations or startup programs, to provide renewable ongoing support, and to support stand-alone projects. Organizations are allowed to apply for grants through the Patrina Foundation once a year.
The Idea Cafe Small Business Grants: Each year, the Idea Cafe awards one small business with $1,000 cash, up to $1,500 in advertising credits, and free publicity. Applying for the grant is easy — you don’t even need to submit a business plan — and you don’t have to pay a fee to enter, either. Do you have a creative idea, big or small, that you hope will make the world a better place? You may want to spend a few minutes applying for this.
To learn about additional grants for women, browse this comprehensive database.
Pros of financing with grants:
Money you don’t have to repay
Publicity and prestige if you’re awarded a grant
Easy to find via an online search
Cons of financing with grants:
Extremely difficult to secure
Takes a lot of time
Possible application fees
You may have to spend the money in a particular way
No guarantee the grant will be available next year
More resources for female business owners
Want some more help and advice? Wondering about 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:
The National Association of Women Business Owners was founded in 1975 to help female entrepreneurs succeed economically, socially, and politically. This dues-based organization has chapters across the United States and hosts and promotes several events and workshops each year.
The National Women’s Business Council is an independent council that advises elected federal representatives on the economic issues that are most important to female entrepreneurs. The 15-member council researches critical issues and reports their findings to the public.
Operation HOPE Small Business Development helps entrepreneurs in underserved communities find the resources they need to succeed. Founded in 1992, Operation HOPE has helped 2.5 million people and has directed $1.8 billion to America’s low-income communities to date.
The Association of Women’s Business Centers is a national chain of more than 100 centers spread out across the United States that offers 145,000 female entrepreneurs training, support, financing, development, mentoring, and more each year. Head over to their site to find the centers nearest you.
The Small Business Administration provides female small business owners with a wealth of resources separated by states. Learn how to start your business, find small business financing, run your business, and grow your business.
Disclaimer: Fundbox and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.