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Why Women Entrepreneurs Aren’t Getting Funded and What We Can Do to Change This

Why Women Entrepreneurs Aren’t Getting Funded (and What We Can Do to Change This) from Fundera’s slideshare account

For as far as we’ve come in the gender equality movement, we’ve still got a ways to go. Nothing reveals the progress needed quite like the obstacles still faced by our nation’s female entrepreneurs. A daunting report by Democratic staffers of the Senate Small Business & Entrepreneurship Committee reveals what many of us feared to be true: women business owners are struggling to have access to the same opportunities as male entrepreneurs, especially when it comes to credit.

With women owning 30% of small businesses, they are only receiving 4.4% of total dollars in conventional small business loans made. Overall, they are receiving 16% of the conventional loans made and 17% of SBA-backed loans. So, not only are they struggling to get funded, but when they are approved, they’re receiving significantly smaller sums than their male counterparts.

The small business committee had a hearing on Wednesday, July 23rd, to address the barriers currently faced by women business owners, including the very problem expressed in the stats above. The hearing included SBA Administrator Maria Contreras-Sweet, entrepreneur Barbara Corcoran and more.

During the hearing, women’s struggle in attaining relevant business training and counseling was discussed, along with their challenges accessing federal contracts, and most importantly, the clear disadvantage they have when looking for capital. Given Fundera’s mission to help small businesses get access to the capital they deserve, we had to ask:

Just how big is the credit crunch for women?

Beyond the numbers noted above, it’s also important to note that women are receiving only 7% of venture funds, a bleak number considering the rise in entrepreneurship in VC-saturated locations like New York City and Silicon Valley.

Looking at these numbers can be discouraging, but that is not a response that’s going to help us change this ratio. We’ve got to take action to put male and female business owners on equal footing. It’s imperative that we also recognize this isn’t just an issue of gender equality. In fact, women-owned businesses are absolutely critical to the current economy. The report discloses that “growth of women-owned firms outpaces that of all other firm types; women-owned businesses added roughly 500,000 jobs between 1997 and 2007, while the rest of privately held firms lost jobs.” Women entrepreneurs are helping drive job growth, so we need to make sure we, in turn, fuel their growth.

What can we do change this?

The committee proposed the following solutions:

  • Perfect the Programs Where Women Currently Find Success. According to Urban Institute, despite women’s difficulty attaining conventional loans, “57.4 percent of the SBA Microloan program’s loans went to women-owned or women-led businesses.” As this is an already prosperous channel for females, the committee believes Congress should focus on modernizing and improving the SBA Microloan Program to become more accessible to borrowers that are needing smaller capital amounts (up to $50,000). However, women business owners also need the opportunity to qualify for larger loan amounts, so the committee recommends reauthorizing “the Intermediary Lending Program to allow more women to obtain capital between $50,000 and $200,000 that have outgrown the microloan program but are not yet ready for SBA’s other loan programs or traditional credit.” These two steps help increase the reach of a proven channel, while also opening up the total dollar amount accessible to women business owners.
  • Inspire the Growth of Female VCs. Sadly, there is a shortage of women in senior roles at venture capital firms and, unfortunately, this number isn’t improving. In fact, the number of female venture capitalists is actually on the decline, down from 14 percent in 2008 to 11 percent in 2011. Female VCs and female entrepreneurs compliment each other. If we can inspire the growth of women VCs, perhaps we can see more VC funding given to female entrepreneurs.
  • Encourage Crowdfunding as an Option. Crowdfunding offers a great opportunity for women business owners to access a level playing field. One source shows that women actually have a higher success rate in crowdfunding than men, having a 69.5% success rate while men have only a 61.4 percent success rate. Diane Ringellman, founder of Indiegogo says that “woman-owned firms reached their crowdfunding capital goal 47% of the time,” a rate drastically higher than with traditional forms of funding. Crowdfunding is becoming a formidable channel for women entrepreneurs, and one they should be introduced to, understanding the success their peers have experienced.

Given the truth depth of the issue, we wanted to add additional steps that, as a community, we can take to increase women’s access to capital:

  • Increase Education Around the Lending Space. It’s hard to say specifically why women are having a hard time accessing capital. What we can do is work to make sure they can easily attain education and material that allows them to understand what their lending options are and what they can do to build an incredible loan application. They need to know where they can go to learn what type of funding is best for their industry, the age of their business, the amount they seek and more. They need to know what lenders look at when assessing a borrower and how they can build their financial profile to appeal to these lenders. By providing women entrepreneurs with this thought capital, we can assure they have the resources they need to put the best foot forward when applying for funding.
  • Introduce Women Entrepreneurs to Alternative Lending. Given that crowdfunding is such a successful channel for female business owners, it’s important we introduce them to other alternative lending sources. In response to the lack of bank lending, many alternative lenders have come into play—like OnDeck, Funding Circle, and more—that can use technology to help fill in the gap made by banks. If women entrepreneurs are having success with a technology-based platform like crowdfunding, perhaps they’ll find success with other technology-based alternative lenders.

The hearing on Wednesday offered a real opportunity for those of us who are responsible for supporting small businesses. We need to start thinking about other ways we can open up women entrepreneur’s access to capital and work to put these “ideas” into action, ensuring that when we revisit these numbers a year from now, the number of successfully-funded women entrepreneurs rises.

Are you inspired by these numbers? If so, how do you think we can work together to remove these barriers for women business owners?

Read the  “21st Century Barriers to Women’s Entrepreneurship” here or check out our post on where to find small business loans for women.

Meredith Wood

Meredith Wood

Editor-in-Chief at Fundera
Meredith is Editor-in-Chief at Fundera. Specializing in financial advice for small business owners, Meredith is a current and past contributor to Yahoo!, Amex OPEN Forum, Fox Business, SCORE, AllBusiness and more.
Meredith Wood
  • robertbagwell

    Do women fail in business more often than men? If so this would explain why.