Women own more than 11.6 million of the firms in the United States, employ nearly 9 million people, and generate $1.7 trillion in sales, according to the 2017 State of Women-Owned Businesses Report, which was commissioned by American Express Open. Each year the number of women entrepreneurs grows and projections expect the numbers to continue to climb.
Despite this, getting business funding for women entrepreneurs can be a real challenge. Only slightly more than 4% of dollars lent to small businesses each year are companies owned by women, according to a report prepared for the U.S. Small Business Administration and prepared by The Urban Institute. Also, the State of Women-Owned Businesses Report also showed that when it came to financing, women received smaller loan amounts than men. In 2016, the average business loan for women-owned business was $99,000 while the average loans to male entrepreneurs was $105,172. Men also have the advantage of a 25% better chance of getting the funds they seek to borrow, unfortunately, partially because women entrepreneurs have lower credit scores. Due to this issue and because women usually own smaller businesses, it is often more difficult for women to get loans from traditional lenders.
With these odds, what is a woman to do when she needs capital to expand her business, develop and research a new product, or start offering a new service?
The best approach is to know what funding options are available, weigh the pros and cons, and then, evaluate them closely to determine the best choice for you.
Funding Options Available
Though some lenders encourage women to apply, there is no type of financing that excludes men from applying. Despite this, there are several types business funding for women available, including:
- Line of Credit: Similar to a credit card, a business line of credit is there when you want to make a purchase. A line of credit is an arrangement with a lender for specific amount. When you have this type of agreement, you can take funds whenever you need them as long as you don’t go over the established maximum loan amount. You repay the funds on a regular, agreed upon schedule.
- Working Capital Loans: Working capital is the cash you have on hand to pay for your daily expenses, like rent, utilities, and payroll. This type of loan allows you to cover your expenses without using the revenues you have saved. A capital loan is determined by calculating your business’ current assets minus its liabilities.
- Revolving Line of Credit: This is a flexible model of borrowing money. The beauty of this type of credit is that it doesn’t require you to borrow a specific amount at one time. Instead, you borrow money when you need it as long as it doesn’t exceed your pre-approved cap. This is one of the best type of funding because it allows you to move forward with an opportunity at a minute’s notice. The only caveat is that you need to keep track of your borrowing and make all of your minimum payments because you don’t want to be left with a zero balance and payments that you can’t afford.
- Peer-to-Peer Lending: This is a relatively new type of borrowing that allows you access to working capital without having to go through a financial institution. Investors and borrowers are matched through an online forum after potential borrowers fill out an application. Then, borrowers are given a credit offer. With this type of funding, investors determine who they want to lend money to and the parties don’t need to have any prior relationship.
- Short-term Business Loans: These types of loans are perfect for emergency situations. If you can’t cover your regular operational expenses or you are hit with an unexpected expense, short-term loans provide you with the funds you need.
- Microloans: To get a microloan, which is a loan of a smaller amount, you need to have excellent credit or collateral that is required for traditional loans. The U.S. Small Business Administration’s Microloan Program aims to help small business owners, including women entrepreneurs. Microloans are provided through nonprofit organizations, and the maximum amounts approved are for $50,000.
How Can You Use the Money?
Whether you can’t make expenses one month or you want to add a new location to your company, funding can make it happen for your women-owned business.
Here are some of the ways funds can help:
- Buy More Advertising or Implement a New Marketing Strategy: Whether you plan on taking a new approach on social media or upping your game with a new email marketing strategy, it will cost you. Business funding will allow you to pay to give your promotional efforts a facelift.
- Add to Your Team: As your business grows and establishes itself, you will need to hire new employees. If you don’t want to dip into your business revenues, a loan can help pay for new additions to your firm and train them.
- Buy, Replace, Improve Equipment: Whether your computer system needs an overhaul or a vital piece of machinery stopped working, a loan can provide you with the capital you need to pay for it. A loan allows you to keep your business functioning efficiently and at a level that keeps customers satisfied.
- Buy More Products: Prepare for a seasonal sale or stock up on items during a hot sales streak by using a loan to purchase more inventory. An extra plus is that you often pay less when you are buying wholesale.
- Add Locations: Maybe you need to move into a bigger building because your business is thriving? If you have outgrown your office space or need to add more retail locations, then a business loan will give the flexibility to do it without tapping into your business savings.
The Final Say
Getting business funding for women entrepreneurs isn’t always easy, but, it is possible. If you are a woman entrepreneur looking to take her business to the next level or just make your expenses, you need to consider your funding options. With so many options available, you need to explore what’s out there and choose what is right for you. Do your homework because the wrong option can impact your bottom line and your future.
First American Merchant offers business funding for women. It makes the process simple by offering an online application. The process is straightforward and quick, and helps women get a leg up in their businesses and ahead of their competitors.