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Small Business Loans for Women

small business loans for women

Securing business financing is an uphill climb for many small business owners. Unfortunately, it can be an especially steep one for women-owned businesses. A study by the Department of Commerce Economics and Statistics Administration found that women-owned businesses used outside capital to start and expand their business less frequently than those owned by men. The difference was especially pronounced when looking at traditional bank loans. Why is there such a disparity when it comes to small business loans for women?

According to the Department of Labor Statistics, a woman in the United States makes on average $0.78 for every $1.00 a man makes. Studies have tried to explain this wage disparity. They cite career choice, college major choice, taking parental leave, and plain old gender discrimination as some possible causes for the pronounced gap. Whatever the reason, this inequality spills over into the entrepreneurial realm.

The Department of Commerce found that women typically start their businesses with about 64 percent less capital than men. They’re also less likely to take on debt to grow their businesses. More often than men, women indicate that they do not need any outside financing to start and grow their businesses. However, men-owned businesses tend to have better outcomes than their women-owned counterparts. This suggests that better access to financing might help improve success rates.

Researchers offer many different explanations for why women-owned businesses are generally not as successful as those owned by men. Some point to cultural archetypes, noting women may have a hard time seeing themselves as breadwinners or company leaders. Some think women could be intimidated by the male-dominated banking industry and might not be as comfortable negotiating financials. Others note that women are more likely to go into lower-growth industries like retail.

It’s not all bad news for women entrepreneurs. The Census Bureau reported in 2012 that 9.9 million businesses in the United States were woman-owned. This figure is up 26.8 percent in five years. The number of women-owned businesses in 2012 made up about 36 percent of all U.S. businesses. That year, women-owned businesses made up a majority in several industries, including healthcare, social assistance, and educational services.

For women-owned businesses to grow, they must have equal access to capital. To close the current gap and promote prosperity for women-owned businesses, there are many programs that offer small business loans for women. These programs help connect female entrepreneurs to other financing options.

Available Small Business Loans for Women

There are many types of loans women can consider to fund their business growth. With different terms and requirements, different loans fit varying business needs. Some of the most popular options include:

  • Short term loans: Short term loans are like regular term loans. However, business owners must pay them back over a shorter period (about 3 to 18 months). Payments are more frequent, often weekly instead of monthly, than with other term loans. Short term business loans are generally for smaller amounts of money. They will cost the borrower more, as they have higher interest rates and fees. Short term loans are ideal small business loans for women whose business has an immediate financial need. This can help with purchasing inventory or bridging a temporary gap in cash flow.
  • Term loans: Long term loans, or term loans, are for a specific amount with a definite repayment schedule. Terms can extend up to 30 years. Interest rates can be fixed or floating. Fixed rates means interest remains the same for the term of the loan. Floating rates mean interest varies depending on the financial market climate. Term loans are good small business loans for women to make large investments. They just need to make sure that it will benefit their company for a long period of time. They can help with purchasing a point-of-sale system or a commercial piece of equipment.
  • Business lines of credit: A business line of credit is different from a loan. Lenders don’t give businesses an amount in one lump sum. Instead, they give a business a maximum amount that they can draw from as needed. They only need to pay interest on the amount they have used. Many businesses like to have a line of credit queued up. This is a better option over a business loan in case of financial emergency. Others like to use it for short-term funding needs like purchasing supplies and inventory.
  • Working Capital Loans: A working capital loan finances a business’s day-to-day operations. This can be during a time of decreased business activity or a seasonal cycle. Working capital loans are similar to short term business loans as borrowers must pay them in full pretty quickly. Since they have shorter terms than other business loans, they tend to have higher interest rates. However, these are great small business loans for women. They can be a fantastic financial tool when you need some cushion to cover everyday expenses.
  • Equipment loans: Equipment financing allows businesses to finance the full value of expensive equipment like vehicles and machinery. Since the equipment itself is the collateral, these make great small business loans for women. Especially if they own companies without a lengthy operating history, good credit, or valuable assets. Businesses are able to pay for expensive equipment little by little over time. The only downside is that you end up paying for more than the value of the equipment. This is because of the interest.
  • Accounts Receivable Financing: Accounts receivable financing, or invoice factoring, involves a business selling its accounts receivables. Usually to a factoring company at a discount. These are ideal small business loans for women since the business gets money upfront. The factoring company then collects on the invoices. Unfortunately, they do come with fees. Even so, invoice factoring is a generally risk-free way to get fast access to cash when your business needs it.

Alternative Financing Options to Small Business Loans for Women

Small business loans can be a great way for women entrepreneurs to finance their business. However, there are other options as well.

  • Grants: Small business grants are sums of money that organizations give charitably for an explicit purpose. Unlike a loan, you don’t have to pay back the money from the grant. There are many small business grants for women which are specifically intended to help women-owned businesses get a foothold. Securing a grant usually involves an application process. Typically, you explain why your company needs the money, how you plan to apply it, and why your business is the best candidate for the grant. There are many resources online that list grant opportunities.
  • Microloans: Microloans are short-term loans with a low interest rate that specifically helps small startups with no operating history. These loans are for small sums (from $500 to $50,000). They aim to give these businesses the capital they need to get their feet off the ground. Some microlenders give priority to minorities, women, veterans, and low-income individuals to encourage their entrepreneurship.
  • Crowdfunding: Crowdfunding is the practice of raising money for your business. You do this by collecting small amounts of money from many people via an Internet platform. In most cases, businesses don’t need to pay back the money that the crowdfunding campaign raises. However, businesses do typically offer investors some kind of perk, like a first-run product or t-shirt with the company logo.
  • Peer-to-peer loans: Peer-to-peer lending is a practice that matches individual lenders with would-be borrowers. Instead of borrowing from a financial institution, you are borrowing from a person or a group of people. Individual lenders get a better return on their money than other forms of investment. Also, borrowers that might not have qualified for more traditional types of loans get the capital they need. Typically, peer-to-peer loans have higher interest rates and are for smaller amounts of money (less than $35,000).
  • Commercial mortgages: Commercial mortgages are similar to residential mortgages, but they are on a commercial property. Unlike residential mortgages that usually have 30-year terms, the terms of commercial mortgages are more flexible. Instead of just considering the value of the property in a commercial mortgage, lenders also weigh its potential for income.
  • Merchant cash advances: A merchant cash advance is a lump sum payment to a business from a lender. The business pays the money back over time from the money it makes on credit card transactions. The lender is able to take a small percentage of those transactions each day until the borrower pays off the loan. Businesses that use merchant cash advances do incur some fees for the convenience of getting money upfront on future earnings.

SBA Loans for Women and Resources

The U.S. Small Business Administration (SBA) aims to help small businesses flourish, thereby improving the local and national economies. The organization offers a number of programs that help women-owned small businesses specifically.

  • The Office of Women’s Business Ownership fosters women entrepreneurs that have been historically under-served, encouraging their participation in the economy. The group provides business training and counseling programs through local SBA offices.
  • The SBA has more than 100 Women’s Business Centers within its network of educational centers across the United States. These centers try to level the playing field for women. They help them start and grow small businesses while overcoming the unique obstacles they encounter.
  • The SBA offers resources that guide small business owners through the process of landing government contracts. The Women-owned Federal Contracting Program is geared expressly towards women to ensure they are equally represented as government contractors.
  • The SBA Loan Program does not exclusively have small business loans for women. However, it is a wonderful resource that women can take advantage of to help grow their businesses. To encourage banks to lend to small companies, the SBA guarantees their loans. There are a number of types of SBA loans that cater to specific needs.

The SBA also offers free online training programs for women. They also partner with other organizations that promote women in business. These include the U.S. Women’s Chamber of Commerce and the Women’s Presidents’ Association.

The gap between women and men in the working world may be pronounced. Fortunately, there are many options available to help women succeed as business owners. This is achieved through advice, support, and financial alternatives.


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