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The Business Loan Gender Gap: How Do Female Entrepreneurs Successfully Finance Their Businesses?
Running a small business is tough, and being able to finance necessary steps on your journey with loans in order to scale is crucial for most owners. However, for a surprising number of female-owned businesses, this isn't possible. In the UK, for instance, half of female entrepreneurs are rejected when applying for business loans, according to a survey by financial platform Tide. So, what financing options do these women have, and what barriers still need to be broken down to level the playing field in the business world?
Applying for Business Loans—and Why Many Are Unsuccessful
The right loan at the right time can give your business the boost it needs to kickstart valuable growth—which is why knowing how to apply for them is of utmost importance. When applying for small business startup loans for women, start by researching the qualification criteria of whichever lender you're considering, so that you know whether you even have a chance—or if there's anything you can do beforehand to increase your chances. Then, it's time to gather the necessary documentation (tax returns, bank statements, business plan, etc.), find a loan you can realistically afford, and apply.
Sounds simple, right? Many women, however, experience the opposite once they try it for themselves. In the previously mentioned Tide survey, several female UK entrepreneurs report being viewed as "part-timers" and taken less seriously than male business owners—and 53% of female entrepreneurs reported that their limited access to financing has made their launch more challenging.
Alternative: Apply for Business Grants
So, if getting a loan is an issue, what other options are there? If the thought of having to repay loans scares you, applying for a business grant might be a better option. It's important to note that these funds take longer to reach you, the application process is more time-consuming, and the funds are considered taxable income. On the other hand, they don't require a credit check—and for many, the comfort of not having to pay the grant back is worth the extra effort.
Other Resources: Banks, Investors, Crowdfunding, and More
Besides grants, there are, of course, other alternatives to business loans. If you prefer applying face-to-face, your local bank or credit union might be willing to help. If you're willing to share a certain amount of equity and hear someone else's input, there's also the option of approaching investors or venture capitalists who might see potential in your idea—or starting a crowdfunding campaign to raise the money. Lastly, if you specifically need money for expensive equipment, some manufacturers or sellers are willing to offer financing options, usually with the equipment itself as collateral.
Which Steps Need to Be Taken to Close the Gap?
However, solving the business loan gender gap shouldn't just be up to the female entrepreneurs themselves. In order to level the playing field in the long run, lenders will need to reconsider the way they operate. With women being statistically more likely to experience debt-related stress, many are hesitant to even apply for loans due to high costs—meaning that more affordable loans would likely ease the stress levels of many female applicants. Female entrepreneurs also tend to operate alone and value speed more than male entrepreneurs, making them more likely to seek out online options—which are, unfortunately, often more costly. Data from the US Federal Reserve also showed that women who run businesses typically rely more on personal funds and credit cards than male entrepreneurs. This makes running a business riskier for them personally—and keeps them from building their credit and getting approved for loans. Thus, informing more female entrepreneurs about the commercial credit options available to them and encouraging them to use these would also be an important step in the right direction.
This article does not necessarily reflect the opinions of the editors or management of EconoTimes