Even though it often seems as though there are more opportunities for female entrepreneurs and women in business, there are still some areas where women find themselves at a disadvantage, as compared to their male peers. One of these areas is in obtaining funding. Often, extra funds are needed to launch or expand an existing business to take it to the next level. Some options are to apply for a loan, a line of credit, or a cash injection.
Why Is It Difficult to Get Business Loans for Women?
Why is it sometimes more difficult for women to get business loans? Let’s take a look at some of the most common reasons why women can struggle to get a business loan:
1. Not a long enough track record.
If your business is less than two years old, it can be harder to get a loan. Most banks and lenders won’t accept an application from a business owner who has been operating for less than 2 years. This is because they need to ensure that your business is profitable in the long term. If they are confident that your business has a solid financial history then they will feel secure that you can service the debt of repaying the loan. Make sure you maintain good record-keeping habits. Or perhaps seek out and connect with a business loan program instead.
2. Low personal credit score
On average, women statistically have a lower credit rating, or credit score, than men. And this can become a problem because often banks, credit unions, and other lending institutions factor in your personal credit score when deciding whether or not to approve your loan application. But if you belong to the 80% of Americans who have a less than perfect credit score, don’t despair. There are other options and different alternatives in proving your ability to service any given loan amount. These can include having a trusted business associate sign on as a guarantor to protect the integrity of the loan.
3. Not enough collateral assets
When you apply for a bank loan it will probably need to be secured against assets you own. These could be business assets, like equipment or stock. Most lenders take into account personal assets like real estate or cash savings. Banks may undervalue an asset to minimize their risk exposure, so from their point of view, you may have less than you thought you did. If your assets don’t add up to enough for the lending institution to approve your loan application, you could investigate unsecured loans. These require no collateral backing but often come with a higher interest rate.
4. You have a retail business or one that has low revenue.
Most female-owned businesses generate less than $100,000 in revenue per year and are therefore regarded as riskier by some lenders. This can have a negative impact on your loan approval. Also, many women own retail businesses. Banks regard retail as a high-risk sector: even if your retail outlet is excelling, compared to businesses in other sectors they won’t rate as well. This is because retailers generally have higher expenses than other sectors. Factor in lower revenues and lower profit margins compared to other businesses, and you can understand why lenders may be reluctant to provide funding for retail enterprises.
Best Business Loans for Women-Owned Businesses
Here are some of the best Small Business Loans for Women-Owned Businesses available:
1. The U.S. Small Business Administration (SBA)
SBA offers different loan options through the SBA 7(a) program, with a maximum lend of $5 million. Some advantages are lower interest rates and flexibility with fund usage. Acceptable uses for money could be refinancing business debts, meeting daily working capital requirements, purchasing real estate for the business, buying supplies and stock, expanding, or opening a new location.
One requirement for eligibility is that your small business earns less than $7.5 million per year. SBA also offers business guidance with excellent educational resources. If you’re after a small buffer to boost your new business, you could take a look at the SBA microloan program. Operating through community-based representatives, this not-for-profit loan has been created with small business owners in mind. For loans under $25,000, no collateral is required.
2. Credit Unions
With a focus on supporting local businesses and communities, credit unions have a good reputation for assisting women business owners. Because they are not-for-profit organizations, credit unions can often offer a lower interest rate compared to more commercial competitors. They have a more personalized and flexible approach than most of the big banks, which can increase your chances of qualifying for a loan.
However, if you are in a hurry for your loan, a credit union may not be the best option as their approval process involves a lot of paperwork. Which can take time. Also, if you do not have a good credit score and/or a proven business history they might reject your application, or only be able to offer you a loan with a higher interest rate. Some niche credit unions do service-specific target markets, so it’s worthwhile investigating the credit unions unique to your business field.
3. Online Business Loans
There are an increasing number of alternative lenders that administer online business loans. One of the types of loans available is a working capital loan. This kind of loan provides funds to cover day-to-day expenses, including covering overheads, rent payments, or payroll costs. If you need to upgrade I.T. or other equipment you could consider applying for an equipment loan. This loan is ideal if you need help to cover costs of buying new computers, machinery, manufacturing apparatus, and office supplies.
If your business relies on keeping up stock supplies, an inventory loan could be right for you. This covers costs of keeping physical products stocked. Some online lenders also offer fixed interest rate term loans, including short-term loans. These kinds of Small Business Grants have the advantage of making it easy to plan your repayments.
4. Venture Capitalist or Private Equity Injection
Depending on the nature of your business, it’s possible that it could be attractive to venture capitalists. Examine businesses that offer comparable services to yours or have a similar business model to see if any of them have been supported by venture capitalism. Reach out to them to see if they would be interested in investing in your business.
Private equity is also an option you could explore. Relationships are key to gaining interest from private investors who can recognize the potential of your business. Sometimes private equity partners prefer to remain private, so it is not always easy to find someone that could recognize your unique talents. Attending business conferences and events can help you build a valuable network.
5. Crowdfunding
Another possibility is to explore crowdfunding. If you run an online crowdfunding campaign this can have the added benefit of simultaneously improving your market appeal by increasing your online visibility.
Conclusion
Securing extra funding for your small business can feel challenging but putting a strategy in place that focuses on some or all of the options mentioned can help. There is nothing stopping you from pursuing several options at once. In fact, it can be advantageous, as it can help show that you are proactive in the betterment of your business. Connecting with other female business owners can help you on your journey. Look for groups in your area, or even Facebook groups that are designed for women small business owners. If you can’t find one, why not start your own? Here’s to your success!
I’m a 20-something stay-at-home mother and wife. I have an amazing husband, a beautiful daughter, two loving dogs, and a lazy cat. I wouldn’t change my life for anything! I love to read, listen to music, cook and blog!
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