May 05, 2017 Small Business Financing

You know that you need money to start a business. And access to loans, investor backing, or grants for funding are especially important for women-owned businesses. The sad reality is that women have a harder time securing business loans or investors than their male counterparts. This funding challenge is even more pressing for minority women.

Microlenders offer an affordable way for women-owned businesses to secure competitive rates on loans so they can get their small businesses up and running. Microloans are not only a smart option for business funding, but these loan programs also provide lendees with mentoring and business resources to help make fledging businesses a solid success from the outset.

The Diana Project: Statistics on Funding for Women-Owned Businesses

Women Entrepreneurs 2014: Bridging the Gender Gap in Venture Capital Executive Summary recorded disheartening trends about funding for women in business. This report was prepared and sponsored by The Center for Women’s Entrepreneurial Leadership at Babson College, Ernst & Young and The Diana Project. It marks the “first comprehensive analysis of venture capital investments in women entrepreneurs since the original Diana Project research conducted in 1999.”

The Diana Project, founded in 1996, was the original multi-university longitudinal study of women-led business ventures, funding, and growth. The 1999 Diana Project examined “possible reasons why fewer than 5% of all ventures receiving equity capital had women on their executive teams. Conventional wisdom suggested that women entrepreneurs were neither prepared nor motivated to found high-potential businesses. As a result, they were not good candidates for venture capital investors.”

The Diana Project concluded that “contrary to existing perceptions, many fundable women entrepreneurs had the requisite skills and experience to lead high-growth ventures. Nonetheless, women were consistently left out of the networks of growth capital finance and appeared to lack the contacts needed to break through.” 

These are a few more notable facts from the 2014 study:

  • Male-owned companies are funded more often than women-owned businesses. “85% of the 6,793 businesses funded by venture capital between 2011 and 2013 had no women on the executive team.”
  • Women on the executive team correlated with lower funding opportunities. “During 2011-2013 more than 15% of the companies receiving venture capital investment had a woman on the executive team.”
  • Investors wanted to see successful businesses before backing women-owned businesses. “Companies with a woman executive on the team were more likely to receive later-stage funding, or 21% (421) of these investments.”
  • Women-owned businesses had a hard time securing start-up money. “Companies with women entrepreneurs received only 13% of the total investments in the early stage and only 9% in the seed stage.”

How Can Microloans Help Close the Business Funding Gap for Women?

It’s clear from the historical data that lending, funding, and investment opportunities for women-owned businesses need to improve. Fortunately, even if traditional lending options or investor funding falls short, microloans are available for motivated women seeking to start their own small businesses.

Mircoloans are specialized business loans available through nonprofit, community-based organizations. These loans generally have a maximum borrowing cap of $50,000, making them affordable for brand-new businesses. The overarching philosophy behind microloans is providing qualified small businesses with start-up funding, as well as mentoring, training, and educating new business owners. It’s not just about getting a business off the ground – it’s about setting them up for success.

Microloans aren’t exclusively for startups. Microloan funding may also be used to give existing businesses a financial boost in order to grow and expand current operations. Qualifying entrepreneurs may use microloans for working capital, businesses leases, paying employees, business office supplies and costs, insurance, business licensing fees, continuing education, or to purchase inventory. Certain microlending programs do have clearly-delineated restrictions, so it’s important to first review how you plan to spend the funds with your lender to ensure you’re compliant.

Don’t It Get You Down

While we’ve made great strides in equality in recent history, the playing field is still far from level. The good news is that even if traditional lenders aren’t open to you, you still have options. Microloans help level the funding playing field for traditionally disadvantaged business owners, such as women, veterans, or minorities.

To explore whether applying for a microloan may be the right funding choice for your small business, visit Accion’s interactive webpage. For additional detailed information on how microloans support women entrepreneurs, visit Women-Owned Business Loans. For thorough information on government grants, educational programs, and networking opportunities available to women entrepreneurs, visit Resources for Women-Owned Businesses.

 

Thank you to the Coca-Cola Foundation for supporting Accion in expanding economic opportunity for women business owners.

 

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