The specialists from the Small Business Administration (SBA) claim that women-owned ventures experience the fastest development and expansion in any sector. However, loan approval rates are up to 20% lower for businesses led by females than they are for businesses led by males. Of course, it makes you wonder why business loans for women are harder to get. Let’s try to understand this problem better and learn what you can do as a woman if you are willing to launch your own business.
The Nature of the Problem
The president of the National Association of Women Business Owners (NAWBO) in New Mexico, Edna Lopez, agrees that getting loans from banks is one of the biggest challenges for women who would like to become entrepreneurs. “The banks will most likely lend a bigger sum of money for a startup led by a male than for their female-owned counterparts,” she states. “In order to get approved and find the best loans for women-owned business you need to make sure your paperwork is ready, your goals are clear and you are ready to answer any of the lender’s questions. Once everything is in order and you are determined to become successful, you can start searching for funds to invest in your business.”
The Impact of the Great Recession
Since the Great Recession, the banks concentrated on lending money to the more established organizations and larger corporations rather than owners of small businesses. It happened partially because they have increased their collateral demands on loans. In addition, it’s hard to obtain that capital due to the loan regulators. This combination makes it a lot more difficult for owners of small businesses to get the working capital they need for their startups today than it was ten years ago.
According to the statistics, annual revenues for women-owned businesses are 15% lower than those for men-owned companies. Also, operating expenses of the ventures run by females are 21% higher compared to those owned by men. More than that, businesses owned by women usually have 40 points lower credit scores than those of men-owned businesses. In other words, many companies run by businesswomen are considered to be a higher risk for the majority of lenders.
What You Should Do
If you are a woman who would like to start her own business and you want to improve your chances of getting approved for a small business loan, make sure you follow these tips and take some significant steps to get your business ready for it.
Show that you manage the cash flow well. Doug Naidus, the CEO and founder of World Business Lenders, mentions that “lenders of small business loans are concentrated on cash flow and financial health, so you should deposit the cash into your account before you pay the vendors in order to show them that your business is a lower risk for a loan and you manage your cash flow well.”
Pay the bills on time. Any expert will agree that the best way to keep your credit score high is to pay your bills on time. Additionally, it will boost your chances of getting the necessary funding for your startup.
Organize your financial information. As we’ve already mentioned above, keeping your financial documentation and information organized will help make the whole verification process much smoother and easier. This will help prospective lenders understand how you will use the loan and support your own explanation of your business goals.
Despite the fact that business loans for women are harder to get, women make up a growing number of new entrepreneurs and