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Women entrepreneurs are shaping the future of small business but still face obstacles when it comes to funding.
Women-owned firms have grown by 45 percent between 2007 and 2016—a rate five times faster than the national average, according to a 2017 report from the U.S. Senate Committee on Small Business & Entrepreneurship. But one of the key challenges for women-owned businesses is the difficulties associated with getting access to capital.
So what exactly is the driving force behind the surge of women-owned businesses? The 2016-2017 Global Entrepreneurship Monitor (GEM) Women’s Report found that women are 20 percent more likely than men to open a business based on necessity. Yet opportunity is also an important driver for women entrepreneurs, who are 5 percent more likely than men to start an innovative business.
It’s also revealing to look at the motivations of the diverse group of women entrepreneurs profiled in the Senate committee’s report. One said, “I’ve always wanted to work for myself,” while another acknowledged, “It was born of necessity. My family was going through a hard time financially and I needed to do my part to make money quickly.”
Another woman entrepreneur explained she was motivated because the business she helped build was sold to an owner who destroyed it. “I needed my own business to control my destiny!” she added.
Whatever your reason for opening a business, it’s clear that women are adept at identifying unfilled opportunities, building on personal experiences, and knowing they could be successful where others had failed.
While the growth of women-owned businesses is impressive, most surveys indicate that funding remains the No. 1 challenge for all small businesses, whether owned by women or men. That’s especially the case for women, with the Senate report stating, “Women entrepreneurs are unable to access their fair share of financial capital, diminishing their chances for growth.” Even though it might seem like an uphill battle, there are good loan options for women-owned businesses.
Angels are individual investors who usually support early stage businesses by making equity investments in companies with growth potential or established businesses looking for expansion capital, in return for an equity stake. Angels often back high-risk opportunities, with the potential for high returns.
The Senate committee’s report suggested crowdfunding may be a worthwhile path for women business owners to pursue, since it might provide a way to fill the gap from other funding sources. This method raises small amounts of money from many people, typically via the internet. It involves a crowd of people raising a defined amount of money for a specific business, cause or project in exchange for becoming a shareholder, for various rewards, or as a donation. Online networks, social media, and crowdfunding websites make this a way to bring investors and entrepreneurs together.
There are numerous small business grants that are dedicated to helping women-owned businesses. Some of the more well-known women-focused business grants include the Cartier Women’s Initiative Award, Open Meadows Foundation, and the Amber Grant.
Also consider looking for federal, state, and local grants. For example, the U.S. Small Business Administration (SBA) offers Women’s Business Ownership Assistance grants, and some business owners might qualify for grants from the U.S. Department of Commerce’s Minority Business Development Agency. One caveat: The competition is tough for this essentially free funding.
Business credit cards, especially those offering 0% interest during an introductory period, provide an easy and flexible source of funding—but it’s important to use this form of credit wisely. For example, after the 0% rate expires, be sure your interest rate is not higher than a short-term business loan. It’s also vital to avoid the cycle of making only minimum payments, which can lead to high credit card debt that may become too overwhelming to repay.
Short-term business loans
Term loans aren’t always considered a resource for small businesses, but a new breed of lenders is trying to change that. Online sources are a good place to check for short-term small business funding. While not women-specific, short-term business loans provide many benefits. QuickBooks Capital, for example, offers short-term working capital loans, with interest rates based on business and credit performance — no origination fees, no prepayment penalties, and no surprises.
The SBA helps women entrepreneurs launch new businesses and compete in the marketplace through training and funding opportunities specifically for women. Funding for women-owned small businesses is available from the 8(a) Business Development program, which helps small, disadvantaged businesses compete in the marketplace. Check with your Women’s Business Center and local assistance resources for guidance and visit the SBA’s Lender Match tool to connect with participating SBA lenders. Women-owned small businesses also can take advantage of SBA loan programs. The main challenges with SBA loans are that they are often difficult to qualify for, require extensive paperwork with prolonged approval times (60-90 days), and very few lenders offer them.
Whatever your motivations for starting a small business and in spite of the unique challenges you and other women entrepreneurs face, when you need inspiration to pursue your passion, consider joining a women’s business organization. Some well-known options like the National Association of Women Business Owners, Ladies Who Launch, or SCORE can be a great place to start networking and can also help you connect with smart ways to fund and keep growing your business.