Three steps women business owners can take to improve their access to capital

Although women entrepreneurs have made great strides in business, they still face challenges in securing funding. For many women-owned businesses, access to capital is the most important mountain to climb.

For example, according to of Annual Biz2Credit Women-Owned Business Survey Meanwhile, the average annual revenue of women-owned businesses increased by 15.5% from 2022 to 2023, with an average fund size of $52,779, compared to $74,544 for men-owned businesses, which increased by 22,000. There was a difference of almost a dollar.

Other research has highlighted that women-owned businesses receive disproportionately less funding than their male counterparts.

According to the Small Business Credit Survey (SBCS), an annual survey of businesses with fewer than 500 employees, 69% of women-owned businesses used personal funds to finance their companies; Up until now, 60% of businesses were owned by men. 5 years. In line with this trend, 27% of women asked their girlfriends for cash, compared to just 21% of men.

However, 56% of women-owned businesses were able to secure government subsidies, compared to 53% of men’s businesses. However, when it comes to raising capital from financial institutions and lenders, only 45% of women-owned businesses were able to do so, compared to 53% of men. SBCS found that the same percentage of male and female business owners (41%) obtain funding through loans, lines of credit, or merchant cash advances.

Looking at the type of financing, women entrepreneurs most often obtained financing by applying for a business line of credit, followed by bank loans, SBA loans, merchant cash advances, and home equity lines of credit. Women sought funding for a variety of reasons, with 68% saying they needed it to cover operating costs, 53% planning to expand their business, 30% reducing existing debt payments, and 27% saying they needed it to cover operating costs. They were looking for a replacement or repair. (Respondents can select multiple answer options.)

Notably, according to the most recent Small Business Credit Survey released last May, 45% of credit applications from women were fully approved and 30% were partially approved, according to Federal Reserve data. 25% were approved and 25% were rejected.

Due to a variety of factors, women find it harder than men to secure funding. Gender bias in financial institutions is a frequently cited reason. As female entrepreneurship increases, the average tenure of women-owned businesses is often shorter. Therefore, the track record of making timely payments is short. They usually have lower credit scores.

Fortunately, changes in small business finance are making access to capital more equitable. The increasing use of AI will allow lenders to look deeper into the regularity of cash flows and sales transactions, allowing them to more accurately diagnose a company’s financial health. These advancements in incorporating digital technology into small business lending have allowed lending institutions to make more money than they would if they were using factors such as personal credit scores, which may not be indicative of how prosperous a business actually is. , allowing for better risk assessment.

Fortunately, there are steps women entrepreneurs can take to gain access to capital. Below are her three methods.

1. Diversification of funding sources. Apply for funding specifically designed for women-owned businesses, including SBA microloans, government grants, and the Venture Capital Fund, which prioritizes investing in women-led ventures. The SBA’s 8(a) Business Development Program provides funding to disadvantaged small businesses, including businesses owned by women. Other funding options for women include the Amber Grant, 37 Angels, and the Women Founders Fund, just to name a few. Expanding the range of financing options allows women entrepreneurs to find options that better suit their needs and circumstances.
2. networking: Develop networks and communities that foster connections between women entrepreneurs, investors, and business leaders. Attend networking events, workshops, and conferences dedicated to women in business that offer opportunities for collaboration, mentorship, and access to potential investors. The SBA’s Office of Women’s Business Ownership offers programs that provide similar opportunities, and its Women’s Business Center provides low-cost training and counseling to women entrepreneurs across the country.
3. Join a women’s rights organization. Women’s is a national 501(c)(3) organization that works to ensure economic justice and entrepreneurial opportunities for women by supporting and sustaining a national network of more than 100 Women’s Business Centers (WBCs). contact groups such as the Association of Business Centers (AWBC). Local WBC, a public-private partnership between the SBA and nonprofit entrepreneurship organizations across the country, serves economically and socially disadvantaged clients in 38 languages. The Women’s Business Enterprise National Council (WBENC) provides a network of more than 500 businesses and government agencies dedicated to the further development of women entrepreneurs. By leveraging the purchasing power of large corporations and organizations, women business owners can gain a stable source of income and opportunities for long-term growth.

By implementing these strategies, women business owners can work toward leveling the playing field in gaining access to capital to grow. Giving women entrepreneurs access to capital is not only an issue of equity, but also a sound economic investment. Unlocking the full potential of women-owned businesses drives innovation, fosters economic growth and creates a more inclusive and prosperous society.