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Mar 20

Women & Loans: Fixing the Small-Business Lending Gender Gap

Reading Time: 4 mins

Work-related gender inequality Issues have been circulating through news cycles at a growing pace in recent years, and deservedly so. From the gender pay gap to the lack of gender diversity in corporate boardrooms, women have been forced to play catch-up for decades. 

While a lot of attention is being paid to executive positions and payroll math, these are by no means the only issues impacting women in the professional realm. Just over 30 years ago, many female entrepreneurs in the United States weren’t able to apply for a business loan without a male cosigner. As this Forbes article points out, banks would require prospective female business owners to have their husbands, fathers, brothers, or other male relatives cosign their business loan documents, regardless of their level of involvement in the company.

Congress did away with this practice in 1988 with the passage of the Women’s Business Ownership Act, but the legacy of these discriminatory practices are still being felt today.

While the number of women-owned businesses, or WOBs, in the U.S. has increased 114 percent over the last two decades – more than twice the national average – they receive less than five percent of the bank financing available to small businesses. That, despite the fact that WOBs apply for financing at similar rates to those businesses owned by men, according to data from the Federal Reserve Bank. Women-owned businesses are also less likely to receive the full amount they applied for.


A Solvable Problem

This isn’t solely an issue within Western developed countries though. The World Bank recently announced a new initiative to help facilitate access to financing and e-commerce markets for female entrepreneurs within developing and emerging economies. The ScaleX program is designed to incentivize accelerators to support start-ups led by women, with the express idea that starting and growing a business is one of the most effective ways for women to overcome poverty and improve lives for themselves, their families, and their communities.

The World Bank program can be seen as indicative of a growing movement to address the funding issues surrounding women-owned businesses. And it is far from alone. A number of U.S. cities have started offering programs to provide capital to women-owned and minority-owned businesses, including Minneapolis, Minnesota; Atlanta, Georgia; and New York City.

Indeed, many people see the business gender gap as a solvable problem. Olympia De Castro co-founded Community Investments Management, or CIM, built to provide responsible and transparent financing to small businesses in the United States in partnership with a select group of technology-driven lenders. 

As Olympia De Castro explains in this WSJ article, with women starting businesses five times faster than the national average since the 2008 financial crisis, supporting WOBs makes sense. She sees this, at least in part, as a reaction to the frustrations that women have experienced while working for others, citing the difficulties that unfairly impact women’s careers. Specifically, children- and elder-care responsibilities, which can hinder a woman’s career path.

Beyond social and moral responsibilities, there’s also an economic incentive for closing the gender gap with regard to financial products and services. According to a report from BNY Mellon and the United Nations Foundation, doing so has the potential to unlock $330 billion in global annual revenue.


Finding The Solution

The U.S. Fed’s own data provides information on how to address this credit disparity for women-owned businesses.

For one, credit providers should prioritize speed. Female business owners cited “speed of decision or funding” at higher rates than men. The study also shows that women were more likely than men to favor online lenders, which tend to set speed and convenience as a priority throughout the funding process. While time is a precious commodity for every small-business owner, women have been shown to more frequently run sole proprietorships. 

Credit providers and government agencies can also encourage the use of commercial credit over personal credit. Women business owners have been shown to rely on their own personal funds and credit cards to support their businesses more than men. While some of these business owners may use their personal resources out of necessity, others may be unaware of the commercial credit options available.

Many women business owners also reported that cost was a large factor in deciding where to apply for financing. WOBs were twice as likely as male-owned businesses to be dissuaded by high-interest rates. Keeping financing affordable would go a long way to ensuring WOB’s gain adequate access to funding. This can be achieved through encouraging competition between different types of business lenders or by opening new streams of capital for these businesses to access, the report points out.


Finding The Funds

There are innumerable websites that compile lists of funding options for women-owned businesses. Indeed, there are many grants and loans available to women looking to start a business, but competition is heavy.

For female business owners, grants can be a great way to get off the ground. These are financial incentives that don’t need to be paid back, unlike a small-business loan. They’re provided by corporations, governments, and other special interest groups with the hope of encouraging female entrepreneurs to grow and develop their own businesses.

Grants.Gov, the Girlboss Foundation Grant, the Cartier Women’s Initiative, and the Eileen Fisher Women-Owned Business Grant are a handful of grant options available to WOBs.

Loans are another avenue of funding for WOBs that can offer a great number of benefits when used correctly. They come in myriad types, classes, and kinds, each with their own terms and conditions. There are many resources available online, but the U.S. Small Business Administration’s website is a great place to start the search.

There has been a great deal of progress for women entrepreneurs in recent years but experts believe there is still room to improve. Still, government agencies and special interest groups continue to search for ways to unlock capital for women-owned businesses. With continued effort, the progress we’ve seen in recent years should be just the beginning.



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