Published December 22, 2021 by WC Team

State Of Small Business Lending: Spotlight On Women Entrepreneurs

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Do female entrepreneurs have a difficult time funding their firms through business loans for women? 

Main Takeaways Of Women Entrepreneurs

Small Business Lending & Women Entrepreneurs

Women control approximately one-third of all small businesses in the United States. This means that female entrepreneurs manage more than 10.6 million enterprises. And they generate more than $1.3 trillion in sales as well as employ nearly 8 million people.

Women entrepreneurs have made great progress toward equality during the last 50 years. According to research conducted in 1972, women-owned enterprises made only 4.6% of corporations; but today they account for 29% of all organizations.

According to the Senate's 2014 study on 21st-century hurdles to women entrepreneurship, the growth rate of women-owned enterprises has increased by 20% between 2002 and 2007.

This trend outpaces that of all other sorts of enterprises. As women-owned businesses gained approximately half a million employment between 1997 and 2007. Whereas all other types of businesses lost jobs.

Women entrepreneurs have created 274,000 net new employment since the recession, trailing only publicly listed enterprises in job creation.

Women entrepreneurs are also more likely to be successful than males due to their differences. According to one survey conducted by the Centre for Entrepreneurs, women entrepreneurs are more interested in serial business owners than their male counterparts.

Women Entrepreneurs & Business Financing

Women Are Turned Down At A Higher Rate

Women-owned small companies are accepted for funding at a rate of just 32% on average, which is 3% lower than male-owned small enterprises.

It is unfortunate that approval rates for women-owned firms are somewhat lower than for male counterparts. The more concerning figure is the sort of finance for which women company owners are more likely to be granted.

Women who successfully obtain debt financing end up receiving short-term loans on the highest interest rates available to any small company applicant.

Women Earn Less Money Per Year

A greater proportion of women-owned enterprises fall into lower revenue buckets. This may explain why all women-owned businesses account for just 4% of national revenue.

Annual revenue just like credit score is a significant component in credit eligibility.

The numbers are consistent with a wider and long-standing pattern of women earning less than males. Entrepreneurs as well as employees. According to The American Association of University Women, a full-time job pays a woman around 78 cents for every dollar a full-time male employee makes.

Although this figure has risen from 59 cents in 1963, it still implies that women contribute less money to their homes and have smaller financial reserves. Plus, it also means that they save less for retirement and are granted lower credit card spending limits among other things.

Women Demand Less Money

According to Fundera statistics, women seek $89,000 in debt financing on average. While males ask for $124,500, representing a $35,000 difference. This might be due to various factors including trends of decreasing eligibility. And it could also contribute to a disparity between actual loan amounts funded.

According to Fundera's statistics, there's no doubt that this disparity is attributable in part to the fact that women-owned firms generate less income. And have worse credit scores than male-owned enterprises.

Carnegie Mellon University’s economist Linda Babcock  claims that four times as many men as women ask for a raise. And just one-quarter as many women as men negotiate their starting salary. Both of which contribute to the gender pay disparity. 

According to research conducted by Babcock and Hannah Riley Bowles of Harvard University, these data points all point to a greater trend of women undervaluing themselves. Feeling confined by the societal reaction against asking for a pay raise or both.

Women Are Granted Smaller Loans

Female company owners obtain half as many SBA loans as male business owners. Plus, they also receive 2.5 times less money from the same loans. 

In reality, women entrepreneurs are offered lower loans from the same groups of online lenders. 

Whatever the reason, this illustrates a significant disadvantage that women confront when expanding their enterprises with loan finance. SBA loans, in particular, are intended to support even tiny and fledgling firms.

Women Business Owners Have Lower Credit Scores

The most notable distinctions are in business owners' credit eligibility. First tier is below 550. Second tier is between 550 and 650. Last tier is beyond 650. These are three main tiers of eligibility into which business owners can be categorized.

A company owner's credit score is one of the essential variables. It is the most important aspect in determining funding eligibility. 

However, our data cannot indicate whether the trend of lower credit ratings for women entrepreneurs is a cause of credit access inequality or an outcome of other reasons. 

Recognizing Problems With The Statistics Data

We should highlight that none of these characteristics are required to contribute to a discrepancy in small company loan availability. And if they do, they are almost certainly only one among several.

Fundera strives to be as truthful as possible especially when dealing with such a sensitive and important subject. But it is also critical not to oversimplify a complex issue.

We believe that improved openness will assist our community in recognizing the issues underlying small company finance access. Along with the willingness to work together in building a fairer, more honest and more profitable sector.


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