The number of small businesses owned by women is growing rapidly. But women don’t seek or get bank financing at the rate men do. The SBA offers special help for female entrepreneurs who need loans
Dear Your Business Credit,
I’m starting a new video production company. Are there any types of financing you’d recommend specifically for women business owners? — Amy
It’s an exciting time to be a female entrepreneur — I’m one myself. Our numbers have been growing at a phenomenal rate in recent years. The 2012 State of Women-Owned Businesses report commissioned by American Express OPEN found that the number of such firms grew by a whopping 54 percent over the 15 years leading up to the report — faster than all but the largest public companies. So you’ll have plenty of company as a woman entrepreneur.
If you don’t have access to an informal loan from a family member, a bank loan is generally the cheapest route to getting long-term capital for growing your business. I’d recommend that as your first choice.Many entrepreneurs use credit card financing, but it’s best to reserve that for shorter term business purchases, such as plane tickets to a trade show. Then pay off the balance at the end of the month, so you don’t load your business with lingering debts.
It’s a pretty good time to try to get a loan, after years of doom and gloom. In the first quarter of 2013, small businesses found easier access to bank loans, according to a report by Experian and Moody’s Analytics. Big banks approved 16.8 percent of small business loans in April, a big increase from 10.6 percent in April 2012. This healthier lending climate is likely to continue for the second quarter, according to the Federal Reserve’s April 2013 survey of senior loan officers.
To get a bank loan for a startup, you may have to put up collateral, such as your home. That’s a big decision, but it may help you to build a stronger business in the long run. Having a cash cushion during the early months of a business, when sales and receivables are likely to be slow, is crucial to survival.
Women entrepreneurs are less likely than their male peers to seek bank financing, according to the 2012 Global Entrepreneurship Monitor (GEM) U.S. Report issued in late May by Babson College and Baruch College. This results in women closing their businesses at a higher rate than men. About a quarter of women in the study who closed their firms essentially ran out of money, the researchers found. Only 13.5 percent of men who shuttered their companies did so because of financing.
It can be intimidating for new entrepreneurs, male or female, to apply for a bank loan, given the paperwork that’s often involved. I’d strongly recommend visiting one of the Small Business Administration’s Women’s Business Centers in your area to find out what options are available in your state. The SBA offers a variety of different types of loans targeted to different business needs. The 7(a) loans — which can be used for working capital — are among the most popular.
SBA women’s business centers will typically offer advice on how to prepare your loan application so you can succeed. You can also pick up other skills that may help you build your business — how to go after government contracts, for instance.
If you have a unique and interesting business concept, don’t overlook nontraditional forms of financing like crowdfunding on sites such as Kickstarter or Indiegogo. Crowdfunding enables you to seek donations from fans of your business by reaching out to them through social media. Some of your friends and contacts may love the idea of supporting your woman-owned business this way. Better yet, you won’t have to pay them back.