BUSINESS FINANCE FOR WOMEN. IS THERE A GENDER GAP?
Business finance for women – is there a gender gap?
The gender gap is alive and well when it comes to business finance for women entrepreneurs. To what extent is it affecting women and are there any other factors at play?
The number of women-owned businesses continues to grow and so too has the number of women business owners looking to secure credit for their businesses. Interestingly research conducted by Biz2Credit found that, on average, the average size loans were 31% lower than male-owned businesses. Is there a lending gap for women as there is in relation salaries? Or are women more cautious when it comes to borrowing?
It’s true that women are better at bootstrapping finances and saving but, sadly, I fear the ugly face of gender equality is present in the world of business finance.
The Biz2Credit study, which included 30,000 companies nationwide in more than 20 industries — including retail, health care, hospitality, construction and professional services, among others — revealed that the average loan amount for women-owned companies was $48,341 last year. The most common type of funding was working capital for business expansion.
But women still have a long way to go in order to have gender equality in the lending market. The Biz2Credit research found that the average size loan for women-owned businesses was 31 percent less than for male-owned businesses ($70,239) in 2018.
The gender lending gap
Average annual revenues of women-owned business rose from $202,491 in 2017 to $228,578 in 2018, according to Biz2Credit, which analyzed 30,000 applications from business owners through its online platform last year. Meanwhile, businesses owned by men in 2018 generated about 7 percent more revenue ($473,157) than they did in 2017 ($444,227), and made $244,579 more revenue on average than women-owned businesses last year.
Even though women-owned businesses are growing, they still face challenges, especially when the company is in a male-dominated industry.
Nonetheless, female-owned firms are booming. Women are opening an average of 849 new businesses per day, according to American Express’s State of Women-Owned Businesses Report (2017). The study found that the number of women-owned businesses has increased 114 percent in the past two decades, and the number of companies owned by women of color has increased 467 percent. Minority women now own 46 percent of all women-owned firms, according to the report.
Lending activity from the SBA helps women-owned companies secure capital for growth. The agency facilitates federally guaranteed loans to small businesses that might not otherwise qualify for traditional bank term loans. SBA loans totaled $25.37 billion in the fiscal year that ended in October 2018. Many of the loans go to women-owned and minority-owned businesses
Women’s Credit Scores Remain Lower
Interestingly, credit scores for women business owners and the average age of women-owned companies applying for small business loans dipped. Biz2Credit found that the average credit scores for women-owned businesses dropped from 598 in 2017 to 588 in 2018 and trailed the scores of their male counterparts (613) by 25 points. One reason is that companies are being started at a record pace, and many of these entrepreneurs — particularly minority women — are younger and don’t have a long track record of repaying debt. Thus, their credit scores will be lower than their male counterparts.
According to a report on CNBC, women shoulder around $890 billion in student loans — the vast majority of the outstanding student loan balance in the U.S. — and once they have those degrees, they earn less than men do. Thus, it takes women longer to repay debts. Many times their companies are underfunded, and lower credit scores are certainly a factor.
It’s a disgrace that there is any kind of gender gap in earnings, but it’s a fact of life for women in business and those who remain employed. I believe the earnings gap is a driving force for women looking to resolve the gap by taking control of their financial future by running their own business.
Every business owner needs to keep a careful eye on their credit score, but for women the need is much greater. The financial world is still dominated by men and, like it or not, we have to work around it.
I can help. Not only does my company FitUFinance provide support to business owners when the big banks say no, I’m also heavily involved in the process of helping entrepreneurs develop strong business credit using a combination of credit builder programs, common sense and determination to see the gender gap be a thing of the past.
Today is Women in Business day, so … LET’S HEAR IT FOR THE GIRLS!
Lisa Rodino
Director. FitUFinance.
Lisa Rodino is Commercial Finance Specialist who helps small business owners and investors navigate the many financing options available to help them grow and prosper.