These days, women-owned businesses are booming. In the United States, 42% of all businesses are owned by women. They employ more than 9.4 million people. And they report nearly $2 trillion in revenue. Not bad for just a few decades of progress.
But even though women have made great strides in business ownership, they’re still not on equal footing with men. For one, nearly two-thirds of women entrepreneurs report that they’ve experienced a form of gender bias during the funding stage of their businesses.
One of the most common ways this manifests is in the form of loan discrimination. Studies have shown that women are more likely to be denied loans than men and are more likely to be offered smaller loans at higher interest rates.
Loan Applications by Women Rejected More Frequently
The wage gap — the wage difference between male and female workers — is nothing new. Over the years, gender bias has been documented thoroughly. Data from 2019 shows that an American woman earns less than 80% of what a man earns.
That can be explained by the fact that women hold less senior positions in companies and are more likely to work in lower-paying industries. These gaps have been slowly narrowing over time, but they still exist.
Naturally, they’ve been discussed ad nauseam. But what’s often overlooked is the wealth gap — the disparity in net worth between men and women — is even wider. On average, a business owned by a woman will receive a 30% smaller loan from such companies as Cashbuddy.
Even if a woman brings in the same revenue as a man, she’s unlikely to be approved for the same loan. Often, the female entrepreneur’s husband or father is required to be a guarantor on loan, which effectively shuts women out of the process.
And even when they are approved for loans, they’re often offered less favorable terms than their male counterparts.
Women Being Held to a Higher Standard Than Men
The fact that women are held to a higher standard than men is nothing new. It’s a reality that women face in nearly every aspect of their lives, from the workplace to the home. And it’s no different when securing loans for their businesses.
Banks often require women borrowers to have higher credit scores than men and to provide more collateral.
They’re also more likely to ask women questions about their personal lives, family obligations, and business plans. That creates an environment where it’s harder for women to get loans. And it’s not just perception; the data bears this out.
In a study of small business lending, researchers found that women were more likely than men to be asked about their credit history, collateral, and business experience. They were also less likely to be approved for loans.
Pitfalls of Self-Funding a Business
One common way women try to overcome the barriers they face in securing loans is by self-funding their businesses. This can be a good option for some women; however, it’s not without risks.
For one, self-funding can limit the growth potential of a business. If a woman can only invest her own money in her business, she’ll likely have to pay more debt later to finance expansion.
On the other hand, working with a credible lender like Expresskredit can help a woman get the funds she needs to grow her business without putting herself at risk.
Falling into a debt cycle is a real danger for self-funded businesses. And it’s one that women need to be aware of before they take out loans from family and friends or dip into their own savings.
Another thing to consider is the impact self-funding can have on personal finances. You risk your personal assets when you invest your own money in a business. If the business fails, you could lose your home or retirement savings.
How Women Can Secure Loans for Their Businesses
Despite the challenges women face when securing loans for their businesses, there are things they can do to increase their chances of success.
Getting loans from family and friends is an option worth considering. That can be a good start, but treating these loans like any other debt is important. Drafting a contract outlining the loan terms and ensuring everyone understands the risks.
Another option is working with alternative lenders, such as Daypay. These online lenders offer loans with more flexible terms and often have special programs for women-owned businesses.
Credit unions are another option worth considering. These organizations are typically more supportive of women-owned businesses than banks and may be more willing to work with borrowers who don’t have perfect credit.
Closing the Gender Gap in Lending
The gender gap in lending is a real problem that needs to be addressed. Women-owned businesses are vital to the economy, and they deserve the same access to capital as their male counterparts.
Lenders, banks, and other financial organizations must make a conscious effort to support female entrepreneurs. They need to offer more flexible products, increase outreach, and eliminate any biases that make it hard for females to thrive.