Login
In her first appearance before the U.S. House of Representatives, the Administrator of the Small Business Administration (SBA), Maria Contreras-Sweet, recently said, “There is no silver bullet when it comes to access to capital.” This comes from a woman who left the California-based bank she founded to become Administrator. Her sentiments were brought into clear focus by another Californian, Congresswoman Janice Hahn, who cited bleak statistics when it comes to the status of women and access to capital: before the recession, women-owned small businesses received 40 percent of SBA loans; today, it is only 16 percent.
The publication of the Senate Small Business Committee’s report on challenges facing women business owners, 21st Century Barriers to Women’s Entrepreneurship, has spurred the women’s business community into doing some soul-searching to try to get to the bottom of the mystery. Namely, why do women lag behind their male counterparts when it comes to obtaining capital for their businesses? The speculation comes in various forms: women don’t have the confidence to go ask for money/investment, men lend to men not women, lending requirements stack the deck against lending to women-owned businesses since they tend to be smaller and newer than male-owned businesses; the list goes on.
The National Women’s Business Council, another voice for women nationwide, recently published a study about this topic.
Among its findings:
- Men tend to start businesses with twice as much capital as women, $135,000 vs. $75,000.
- The biggest difference in amount of capital between men and women was with regard to outside equity, in which women receive only 2% of total outside funding compared to men, who receive 18%.
- Women were more likely to be discouraged from applying for loans due to fear of denial – and justifiably so: in 2008, women-owned businesses were much more likely to have their loan applications denied than their male counterparts.
- Women entrepreneurs tend to raise smaller amounts of capital to finance their firms and are more reliant on personal, rather than external, sources of financing as compared to male entrepreneurs.
The study made the following recommendations:
- Entrepreneurs should consider founding businesses with other people. According to the study, many investors are reluctant to fund a single business owner because of the difficulty for one person to scale a business. Additionally, they should also complete a cost-benefit analysis of what equity financing can do, carefully weighing the upside (financial, social, and human capital) of external equity with the downside (less control of the company’s future).
For Funders, the study recommends increasing outreach to find women entrepreneurs with investment-ready firms. Similarly, they should increase the number of women on the financing and investment side, such as angel investors, members of a venture capital pitch committee, and in other roles.
- For the Entrepreneurship Ecosystem, the study recommends encouraging women to participate in STEM fields prior to entrepreneurship. Although women are on par with men regarding educational attainment, previous research indicates that women are less likely to have degrees in STEM fields – and these fields are more likely to offer opportunities for growth-oriented entrepreneurship. Additionally, business programs focused on women and women-led and –owned businesses should be established and strengthened, including accelerator and incubator programs, equity financing programs, and business mentorship and training programs that target women-owned firms with high-growth potential.
- A recently published SBA Advocacy study, Understanding the Gender Gap in STEM Fields Entrepreneurship, backs up the last set of recommendations, finding that women who attended universities with industry-funded research and development are more likely to start an entrepreneurial venture. It also found that women are just as likely as men to be entrepreneurs when their first postdoctoral job is in a STEM industry.
Policy advocates are all seeking a way to bring more capital to women-owned businesses so that they can become successful and create wealth for themselves and their families.
“Why do women lag behind their male counterparts when it comes to obtaining capital for their businesses?”
An ally is Senator Maria Cantwell, who chairs the Senate Small Business Committee. She recently held a roundtable discussion in Seattle, Washington that focused on changes Congress could make to resolve this inequity. After a hearing packed with women business owners and advocates on Capitol Hill earlier in the summer in Washington, D.C., Senator Cantwell introduced a bill that would make it easier to access loans of less than $150,000 (including microloans) because women use these loans by a greater percentage than men. It also boosts the services of Women’s Business Centers (WBCs), which provide entrepreneurs with business training, counseling, as well as connections to lenders.
Similarly, to counter the lending trends identified at the Congressional hearing, Administrator Contreras-Sweet touted recent actions taken by the SBA on a number of fronts to increase SBA loans to women. For example, the SBA waived fees on loans below $150,000. The Administrator recently announced the upcoming launch of SBA One, an online platform that will automate the credit scoring process and the sharing of electronic documents between the lender, the bank, and the SBA. Also, under her leadership, the SBA has expanded the Impact Investment Fund, a feature of the Small Business Investment Company (SBIC) Program, which promises to increase the amount of investment funds that flow to women-owned businesses.
Solving the problem of access to capital for women requires actions on all fronts both public and private. No one has a cure-all – a silver bullet – to solve the problem.
“Last, but certainly not least, women should think bigger and bolder by foregoing the notion that business debt is bad.”
On the private front, business organizations that serve women need to step up educational offerings and seminars, including training on which lending programs are available and the best way to obtain the right amount of capital required to start and grow their businesses. They must facilitate connections with lenders and investors who want to connect with their membership. Lenders need to be much more aggressive about reaching out to women business owners and advertising their loan products to them. Non-traditional lending institutions, such as Community Development Financial Institutions (CDFIs), must do a better job of promoting their ability to provide small loans. Equity and angel investors should be seeking out and forming alliances with women business organizations to create a pipeline of women who are ready and eligible for their capital offerings.
On the public side, the Small Business Administration (SBA) should push its network of lenders to pay closer attention to lending to women. The SBA should also look for ways to strengthen outreach efforts to women to encourage them to participate in their lending programs. Similarly, the SBA could make it easier for women-owned small business to apply for loans by streamlining the requirements for participating. Like Senator Cantwell’s proposed bill, Congress should allocate the necessary funding to Women’s Business Centers who are in a position to help: there are just slightly more than 100 WBCs nationwide, which is not nearly enough to serve the fastest growing segment of businesses.
Last, but certainly not least, women should think bigger and bolder by foregoing the notion that business debt is bad.
Insisting on a cash business will almost certainly keep the business small and result in slow growth. That is unless you come to the business armed with lots of cash or you take over a business that is well-established. The last time I looked, not many of us fit into either category.
Although the answers to why women lag behind men in accessing capital for their operations and growth remain elusive, there is no mystery that to be successful, women entrepreneurs need it. An integrated solution depends on all stakeholders, both private and public, must work together to increase capital for women entrepreneurs.
So what are we waiting for? Let’s get to it.
Article by Ann Sullivan WIPP Government Relations
To view the original article please see our magazine titled “Break it Down” Vol 3, Issue 6 by Clicking Here