Looking at the most recent data, small businesses started by women entrepreneurs are growing at an unprecedented rate. What is most surprising is how they are able to do grow at this rate while access to capital among women-owned firms is limited as compared to small businesses owned by men.
According to the National Women’s Business Council’s High Growth Women-Owned Businesses’ Access to Capital study, small businesses owned by men attain six times as much capital than small businesses owned by women. Yet without the external business financing as men, women business owners are more likely to see their business have rapid growth than that of their male counterparts.
While women business owners seem to be making the most of their capital and women’s business resources, that doesn’t mean they aren’t looking for external financing to help with purchasing a business, procuring equipment, helping to purchase inventory, hire new employees and/or help with marketing.
With that in mind, let take a look at some of the financing options available to help women start and grow their own businesses.
SBA Loans For Women
In 2014, roughly 14% of all SBA funding went to businesses with women making up over 50% of the ownership. Another 13% of SBA financing went to businesses owned by women with less than 50% ownership.
The SBA doesn’t actually loan money to the businesses, but instead guarantees a portion of a lenders risk, ensuring they get paid even if the business owner defaults. By guaranteeing a portion of the loan, the SBA reduces the business lender’s risk, which helps increase the number of loans the lender approves and funds.
The SBA caps interest rate a lender can charge (usually between 6-8% paid back over as many as 25 years) making it among the most appealing of all the business loan products available. But be prepared to gather paperwork, as SBA small business loans require more financial paperwork and documentation that most other types of business loans.
Bank Loans For Women
Banks generally offer two main loan products to women-owned businesses (and all businesses): term loans and lines of credit. Traditional bank loans and lines of credit are generally the most appealing of all business loan products, being that they tend to have the best rates (usually in the 4-10% range).
While traditional bank loans don’t require as much paperwork and documentation as SBA business loans, the paperwork is still substantial, and the approval process is stringent.
Line of Credit For Women
A business line of credit may be a good choice for women business owners who need access to quick funding when the time arises.
A LOC works much like a credit card, being that you are preapproved for a maximum amount of funding that you do not have to draw upon, therefore you are only paying interest on the money you actually use
Asset Based Loans For Women
Asset based financing allows companies to leverage their business assets to attain loans and lines of credit, when other sorts of more traditional financing are unavailable.
With an asset based loan, a lender will usually forward the business a percentage of the value of the company’s accounts receivable, inventory, equipment other other asset.
Alternative Loans For Women
For women owners with less than stellar credit, or for a business owner who needs faster financing than a most lenders can deliver, an alternative loan (or mid prime small business loan) may be a good choice.
Mid Prime alternative small business loans have a lower criteria for approval (credit needs to be 600+) with a much faster funding process than a bank loan (usually within 2 weeks). Rates are usually between 9-16%, with repayment between 6 months and 5 years.
Merchant Cash Advance For Women
When more traditional forms of business financing aren’t available, many small business owners are using business cash advances instead. A merchant cash advance isn’t a loan, but is instead the sale of future credit card and/or bank deposits at a discount.
Approval and funding with a Merchant cash advance are simple and quick, with just about any credit type approved. But, since the commercial lender is taking increased risk, the rates associated with a business cash advance are much higher than traditional types of commercial financing.
Grants For Women-Owned Businesses?
These resources are the most scarce of all types of business financing. While the government doesn’t provide grants for women entrepreneurs, the SBA does help find grants for women owned businesses.