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Why don’t women get more small business loans

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Women entrepreneurs own about 30% of all the businesses in the US and have generated more than $1.5 trillion in 2015. However, they have a hard time getting business loans as compared to their male counterparts.

While it can be hard for any startup to get finances to take the business off the ground or facilitate expansions, men tend to be taken more seriously than women. Basically, some societies think that women have more responsibilities in life. For instance, traditional lenders are hard to convince that it’s possible to juggle between being a wife, a mom, and build a thriving business. However, that has not stopped women from creating successful businesses across multiple sectors.

The choice of industry and type of business

You’d be surprised to learn that the bias is not based on gender but it tends to be closely linked to the types of business that most women are interested in. when most women quit their day job; they start home-based businesses that are operated from a spare room in the house.

Contrary to this trend, most men will venture into businesses that require going out the house. For instance, they start restaurants, real estate firms, and construction businesses.

As such, the businesses women start may require less capital than what their male counterparts require. These businesses can be comfortably started from personal savings unless there is a need to expand within a short time. On the other hand, male entrepreneurs get exposed to credit early in the learning curve. For instance, it’s a normal practice among suppliers to ask upcoming business owners to open a credit account that can help during dry spells which is a rare practice in businesses dealing with personal services.

Women entrepreneurs are more inclined towards personal credit

While there are multiple businesses that are proud to work with women entrepreneurs and offer attractive vendor credit, women are likely to rely on personal credit. Although this can be a good precaution, it makes it quite hard to access credit services down the road when it’s critical.

When you avoid credit from the vendors when the business is young, you miss building the necessary credit profile for your business. Therefore, it becomes hard to get a loan without a good credit profile.

All this boils down to debt avoidance at an early stage since most of the businesses don’t require huge amounts of money.

Numbers don’t lie

According to a research conducted by Biz2Credit on women-owned companies, the numbers were quite different from what their male counterparts posted. Take a look at the differences.

  • The businesses had 21% higher operating expenses which resulted in smaller operating margins
  • The average annual revenue was about 15% lower
  • The credit scores were lower by an average of 40 points

When you look at these figures from the surface, it can be easy to conclude that women entrepreneurs are less qualified than male entrepreneurs. However, that’s far from the truth.

The numbers are more linked to the choices of business and industries rather than capability and performance. Among the businesses owned by women that were surveyed, at least 22% had invested in the retail industry. When compared to men, women are about 32% more likely to be dealing in retail.

Irrespective of your gender, retailers tend to have higher expenses, lower revenues, and slim profit margins when compared to enterprises in other industries. As a result, banks won’t be quick to give them business loans as well as lines of credit.

This is one of the major reasons why these business owners run to alternative sources of credit which are more expensive. In addition, most feel comfortable to use personal credit which is dangerous to your personal credit profile.

What should women do secure funding for their businesses?

Over the years, the number of women-owned businesses has been rising constantly. Considering the trend, the number of these businesses is set to get higher. In 2017, the number has been on its all-time high which is a good indicator.

Normally, men are more likely to set up a business than their female counterparts. As such, there is a lot of untapped potential in women entrepreneurs. When loans are issued targeting women entrepreneurs and match it with their specific needs, it’s likely that more women will join in the movement. This will be a boost to both our economy and society in general.

When starting a business, getting a grant can help your fast-track the growth of the startup. Normally, grants are not meant to be paid back and it’s likely that you’ll also receive some sort of business incubation.

While these are a great way funding a business, they might not give you all the money you need to get your startup off the ground. Besides, the competition tends to be high and it’s wise to use them alongside business loans.

There are alternative lenders who are willing to work with women entrepreneurs. Basically, lenders who are dedicated to dealing with women-owned businesses offer outstanding flexibility something that is absent in traditional loan products. Whether it’s a line of credit or capital loan that you want, the lender understands that it can be difficult to for a woman to run a business.

Final words

Women in business face more challenges and more so when it comes to accessing credit. To be on the safe side, start early to take small loans for the startup so that you can consistently build a good track record with time. In the event where it’s impossible to access a loan from a bank, look at unconventional lenders for funding.

While unconventional lenders tend to be more expensive than most traditional banks, they offer better terms than you can get with a credit card. Besides, it’s only a matter of time before your business credit profile gets better which would allow you to get a business loan from a bank.

Another way of getting in a better position for a loan approval would be looking into ways of maintaining lower overheads. While it can be difficult negotiating with your suppliers, it can help improve your bottom line. Lastly, establish good credit record with your suppliers early enough to build trust.

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