The number of women-owned businesses increased by 114% over the past two decades, reaching 11.6 million today. While many discriminatory lending practices have been eliminated, women business owners still face a financing gap.
A BNY Mellon and UN Foundation report said that even though women influence roughly 25-30% of global wealth, they have only 77% of the access to financial services. Without adequate financing, women-owned businesses are unable to contribute fully to local economies.
Fortunately, there are alternative lending options, and creative new startups working to close the financing gap. Learn more about these agents of change.
Women-Owned Business Statistics
- Fundera reports that 35% of male business owners are approved for funding compared to 32% of female-owned businesses. This seemingly narrow margin is deceiving. Women receive smaller loans with shorter terms and higher interest rates
- According to the Urban Institute, women businesses receive 2.5 times less money from the SBA than male-led businesses
- The Center for Responsible Lending found that as much as 90% of women and minority-owned businesses have been shut out of the PPP loan program. Banks prioritized applications from existing customers. This sped up the process of distributing PPP loan funds but sidelined women owners who lack existing credit relationships with big banks
- The Federal Reserve reports that unlike men, women owners must rely on personal credit cards and private funds to support their business
Financial Resources For Female Entrepreneurs
The online lending industry has the potential to disrupt the reality of the financing gap, improving access to business loans for women. Unlike banks, online lending decisions are driven by analytics and numbers. Fintech platforms have also been given permission to process SBA PPP loans, meaning that women-led businesses should see changes there too.
LendingClub is a peer-to-peer lending platform with a solid reputation within the online lending industry. The platform provides small business loans up to $500,000 to cover startup costs, business acquisition, or to purchase equipment. No business plan is required and eligibility requirements are easy to meet. Applicants need to be in operation for at least 12 months and have a minimum of $50,000 in annual sales.
The Red Backpack Fund
The Red Backpack Fund was initiated by Sara Blakely, founder of Spanx. In partnership with GlobalGiving, The Red Backpack Fund is focused on women-owned businesses that have been impacted by COVID-19. The Fund hopes to provide a minimum of 1,000 female-owned small enterprises with grants in the amount of $5,000. The Fund began accepting applications in April. Female entrepreneurs have until the end of August 2020 to apply for COVID-19 relief funds.
The Doonie Fund
The Doonie Fund is focused on helping black female entrepreneurs impacted by COVID-19. The Fund was launched in April 2020 and is named after Kathryn Finney, the founder’s grandmother. Their mission is to “create a world where women own their work.” Finney is the CEO of tech start-up digitalundivided. To date, The Doonie Fund has provided financial support to more than 1000 black female small business owners through non-discretionary micro-investments of $100 to fund operational costs.
The goal of Square Capital is to help small businesses grow. They provide merchant cash advance loans ranging in size from $500 to $100,000, with interest rates between 10-16%. To apply, you must be currently using Square’s point of sale software. Loans are repaid through debit and credit card sales. Applicants must demonstrate annual revenue of at least $10,000, a benchmark easily met by women business owners.
Moms As Entrepreneurs
As mentioned earlier, almost 90% of women and minority-owned small businesses have been shut out of PPP funds. Moms as Entrepreneurs was founded to reverse this statistic. All mom-owned businesses can apply for a grant of $500-$1,000 to help with cash flow issues. Grants are restricted to businesses that have not received COVID-19 funds from any other source and have experienced a decline of 40% or more in sales due to the pandemic.
Fundbox is another source of loans for women. Fundbox provides invoice financing to help cover short-term cash flow gaps. Loans range from $1000 to $100,000, with terms of between 12 to 24 weeks. The loan amount is based on existing invoices, the risk involved in collecting payment, and the typical turnover rate. Qualifications include a credit score over 500 and an annual turnover of at least $25,000.
Women business owners continue to face challenges securing financing despite their contribution to the economy. Women and minority business owners even found themselves marginalized from critical COVID-19 relief loans. Fortunately, alternative lending platforms and new women-led funding initiatives are tackling the inequities head-on, helping to narrow the financing gap.