Did you know that women start an average of almost 850 small businesses every single day in the US? Meanwhile, women entrepreneurship has grown by 114% over the last 20 years.
On the surface, those stats would appear to be big wins. However, it’s important to know about the financing hurdles that women face when they launch their own businesses.
The wage and pay gaps in today’s fulltime workplace have been well-publicized. However, if a woman decides to leave the 9-5 world behind and go into business for herself, she could be facing even bigger and more daunting financial barriers than she would as an employee.
First of all, the average woman may be more hesitant to leave her full-time job because she is still paying off her student loan. The Association of American University Women (AAUW) has reported that:
- Women hold 64% of all student loan debt
- The average woman takes longer to repay a student loan, in part because of the gender pay gap
This means that a would-be woman entrepreneur may have to put off starting her own business until she deals with her student debt. And, too often, putting it off leads to never starting one at all.
If she does decide to take the leap and looks into funding for small business owners to get her idea off the ground, she will learn that women entrepreneurs still face major barriers in finding funding, small business loans or investors.
This is why 72% of women-led small businesses start out with less than $5,000, compared to only 55% of male-led businesses. This is also why 68% of women entrepreneurs will launch their business from their home, compared to only 48% of male entrepreneurs.
However, it is possible to overcome these barriers! Today, we will explore some of the most popular and viable options for loans and funding for women entrepreneurs.
Loans From Major Banks
The Good News: The Big banks are currently approving more small business loans than they ever have in US history.
The Bad News: They are still turning down more than 8 out of every 10 small business loan applications.
The Even-Worse News: The numbers are even worse for female applicants, with the U.S. Senate Committee on Small Business and Entrepreneurship reporting that women only receive 16% of all conventional small business loans, and the dollar amount they are getting approved for is considerably lower.
Bank loans are a great solution if you can qualify to get one. However, that is a rather big “if.” As a baseline, banks are looking for:
- Annual business revenue over $180,000
- A minimum credit score of 680
- To be in business a minimum of four years
- Equity near $1 for every $4 of the loan amount
However, ticking all of these boxes still does not guarantee that you will be approved for your loan. You could spend weeks, or even months, filling out paperwork and sending documents, only to be denied the loan.
If you even suspect that you will fall short of any of the 4 criteria we listed above, it is likely in your best interest to skip the application process and go directly to exploring other options.
Is there a secret for a woman to get a small business loan from a bank? No, sadly. They say the best way to get a bank loan is to prove to them you don’t need one. Unfortunately, the only “secret” to getting a small business loan through a bank is to keep a solid personal credit score, build a solid revenue stream and build your equity.
This is why most will look elsewhere.
A Merchant Cash Advance
If you’ve determined that the big banks aren’t an option, a merchant cash advance (MCA) could be a viable and attainable source of funding for your business. The top end of funding is $500,000 for the most qualified applicants.
The criteria to get a merchant cash advance are not as stringent as a loan, because this is not classified as a loan. It is a form of funding. A woman entrepreneur stands a better shot of being approved for an MCA.
The baseline criteria are:
- Having been in business for 6 months or longer
- Having at least $10,000 in monthly transactions
Instead of making a (typically large) loan payment every month, you would pay back your MCA through remitting daily or weekly debits from your bank account through Automated Clearing House (ACH) withdrawals.
You can also come to an arrangement to pay your advance back via an agreed-on percentage of your future credit and debit card sales. However, most business owners seem to prefer the ACH method.
The application process is also considerably faster than going through a bank or the Small Business Association (more on that below). You can apply for an MCA online and have your answer in 24 hours. You may also actually have your funds the next day.
Is a Merchant Cash Advance Right For Women Entrepreneurs?
Besides the more favorable application criteria and the faster turnaround time, the MCA also offers other advantages over small business loans.
The first one is the repayment terms. Your monthly payments are tied to your income and transactions, rather than a fixed monthly payment. If you’re experiencing a slow sales period, you will be making smaller monthly payments.
The second big advantage is the flexibility of the actual money you receive. Small business loans can be restricted and you may not be allowed to spend the money on certain things. For example, SBA 504 loans don’t allow you to use “your money” to buy inventory. Also, SBA microloans can’t be used to buy real estate or to pay a debt.
With an MCA, you’re free to use the money however you see fit. You can buy inventory, purchase new equipment, pay down your debt, or expand your space.
Do You Already Have an MCA?
Do you ever wonder if you could be paying less in fees? Click this link to send us your merchant statement for a free analysis to see if we can reduce your fees. No two situations are alike, but more often than not, we can save you money!
Small Business Association (SBA) Loans
The odds of a woman getting approved for an SBA loan are better than a traditional bank loan, but still not overwhelming.
The term SBA Loan is a bit misleading because your loan is not through the actual SBA, it’s through private lenders that the SBA matches the applicant with. These private lenders have more relaxed lending criteria than the major banks, but they are still only approving about half of the applications.
The numbers do still point to there being barriers to women entrepreneurs getting SBA loans. In 2016, SBA loans to women-owned businesses accounted for only 18% of the total number of SBA 7(a) and 504 loans approved. They also only accounted for 14% of the total dollar amount of those loans.
The SBA Loan Process
While the loan criteria are slightly more open than the big banks, the loan application process for the SBA is no less intrusive and time-consuming. Applying can take weeks or even months, which is not ideal if you’re in need of fast cash or funding to deal with a sudden emergency, or take advantage of a time-sensitive opportunity.
The application process also opens up your business and financial records for review and scrutinization, while it comes with a massive pile of paperwork.
This may include having to provide:
- A complete business plan
- Two years of business and personal tax returns
- Personal profiles and financial statements for you and any other owners
- Detailed documents stating how you propose to use the funds (usage can be restricted, as outlined above)
And, at the end of it all, you’re not guaranteed to get the money you need. You could find yourself back at square one after investing a lot of time and effort into your application process.
The SBA Loan Equity Requirements
The amount of equity you currently have in your business may also present a barrier in getting an SBA loan.
The SBA’s standards, state that:
The owners must have enough of their own money at stake in the business:
(a) For a New Business (or when buying a business) you should have approximately one dollar of cash or business assets for each three dollars of the loan.
(b) For an Established Firm, the after-the-loan business balance sheet should show no more than four dollars of total debt for each dollar of net worth (i.e., a 4:1 Debt/Equity ratio – may vary by industry).
This means that if you’re a new business with about $5,000 in equity, and you’re seeking $25,000 in funds, you are most likely not going to qualify.
On the other hand, the MCA application is more focused on your income and transactions, which greatly increases the odds of approval for a promising business that is light on equity at the moment.
Venture Capitalist and Investors
The biggest barrier that women face in starting a business may actually be in getting funding through venture capitalists.
Statistics reveal that:
- Women received just over 2% of venture capitalist funding in 2016
- Women-led companies only accounted for 4.9% of all VC deals
One of the presumed reasons for this is the relatively low number of women making the investment decisions. In fact, only 8% of investing partners at the top 100 venture firms are women.
However, data shows that women are more likely to invest in other women. One study revealed that female partners at VC firms are more than 2x as likely to invest in companies with a woman on the management team (34% vs. 13%). They are also more than 3x more likely to invest in companies with women CEOs (58% vs. 15%).
The most logical conclusion that one might take away from this is a woman entrepreneur looking for a venture capitalist would get the best results if they approached a firm with women in key places, or approaching a firm with a history of supporting women, or a stated initiative/ program.
One area where women entrepreneurs do seem to have more success is crowdfunding initiatives. In fact, research shows that women have been 32% more successful at raising money via crowdfunding campaigns than their male counterparts.
However, don’t let these numbers fool you into thinking crowdfunding is easy. It’s actually very difficult, with an overall low success rate. Roughly 63% of Kickstarter campaigns will fail.
That’s because a successful campaign is basically a second part-time job, as you have to run it like any other major digital marketing campaign. And like any other digital campaign, if you don’t already have a large social network of followers (either personally or professionally) or access to an influencer who can spread the message for you, you’re going to have a hard time gaining any sort of traction.
As you can see, women entrepreneurs face significant hurdles in getting funding for their business through banks, the SBA, or venture capitalists.
With this in mind, your best option may be a merchant cash advance. It gives you a higher probability of getting approved, while also offering a fast turnaround time if you need funding in a hurry. You can get the funding you need to deal with cash flow shortfalls or emergency expenses, or to take advantage of a certain opportunity that can help your business grow.
The application process is simple, fast, and non-intrusive. You can get approved in 24 hours or less. You can start right now by calling 1-888-550-3162, or by entering the amount of funding you need into the pop-up screen on any of our webpages.