In the US women are starting up businesses at an unprecedented rate. In 2020, women were owners of around 40% of US businesses, with annual revenues of almost $2 trillion and providing jobs for more than 9 million Americans.
But despite these impressive statistics, female entrepreneurs find it very difficult to access business loans for women. Their applications for business loans are less likely to be approved by banks and venture capitalists. And if they do manage to get approval, they are still less likely to get the full amount of the money they asked for, unlike men. This prevents women from being able to grow their businesses and maintain cash flow.
And given women’s businesses are therefore likely to be smaller in size, they are being hit disproportionately by the global COVID-19 pandemic. Now more than ever, women-owned businesses need to be able to obtain small business loans. But what’s the best way to make a successful application?
Researching business loans for women
Doing your research is essential before you apply to any lenders for a business loan. You want to be sure they offer business loans for women. Some lenders have specialist products aimed at women who own businesses. Others may make you jump through some hoops, so research what you may need to be that bit surer of getting approval for the amount requested.
Your main options for finding the right business loan for women are taking out a Small Business Administration (SBA) loan, getting a small business loan from your bank or a credit union, or using an online lender.
Before you get started, access your business’ credit score using either Experian or Dun & Bradstreet – you are aiming for a score of between 80 and 100. If your business is a startup, your consumer FICO score can help – you want a score higher than 800. Set your goals and work out how much credit you will need.
Business loans for women from a bank or credit union
Your first port of call should be your own bank. The advantage is the bank’s lenders will already know you and your business and that makes them very approachable. Banks and credit unions are generally very flexible in providing the right loan for your needs. Plus, many banks have specific loan products for women needing a business loan and can often offer favorable interest rates to the borrower. Another advantage is that your small business loan will likely be approved quickly.
The downside is you can have a lot of paperwork to fill out and even after the bank has checked your credit score, given your business appropriate scrutiny and approved a small business loan in principle, it can still take weeks or months to be given the funding.
SBA business loans for women
The SBA has a network of lenders across the US that provide small business loan programs for women. An SBA 7(a) loan can be up to $5 million at low interest rates with repayment over 5-10 years. You need to fit the SBA’s definition of a small business. The SBA’s Express Loan is ideal for business women who don’t need to borrow more than $350,000 – your business must be established for at least two years. Approval can take 60-90 days and the interest rate is higher than for a 7(a).
Online business loans for women
If you need to access funding fast, your best option will be to find an online lender that offers small business loans to women entrepreneurs. If your business is a startup or your credit scores aren’t quite as high as they could be, your loan application could still qualify for approval within two days, and the credit coming through soon after that.
The drawback to opting for a business loan for women online is that it will cost more. The interest rate will likely be higher than at your bank and you may need to have collateral. But shop around – there is a huge variety of online lenders willing to loan as much as you need and with flexible repayment terms.
Microloans for women in business
If you don’t need a huge loan, consider taking out a microloan. Given that many businesses run by women are often small, a microloan could be a good fit. They are particularly suitable if you don’t need a lot of capital – just enough to buy a small amount of equipment or pay for marketing your services. Typically a microloan is under $50,000 and likely a good choice if you’re just starting out or you’re a sole proprietor. If you’re a one-woman band – say, a freelance hairdresser or virtual assistant – a microloan makes a lot of sense.
The SBA offers business microloans of up to $50,000 to women, with payment terms up to six years. Accion also offers microloans to women in business of up to $50,000. The Opportunity Fund provides microloans of up to $30,000, but you must be in business at least 12 months before applying.
Don’t forget grants
If you’re having trouble finding the right lender for a business loan, don’t forget to look for other sources of funding. A little research will show the wide array of grants, bursaries and other kinds of funding in the US to support women running businesses. Start at the top. The US government provides federal grants for small businesses, then look at what your state may be offering – many states provide specific grants to help women entrepreneurs get started.
We can help
If you’re interested in finding out more about any aspect of your small business finances, then get in touch with our financial experts. Find out how GoCardless can help you with ad hoc payments or recurring payments.