Women entrepreneurs are making significant strides in business, yet still face challenges securing funding. For many women-owned firms, access to capital is the most significant mountain to climb.
For instance, according to the Annual Biz2Credit Women-Owned Business Study for 2024, while the average annual revenues for women-owned businesses rose by 15.5% from 2022 to 2023 the average funding size of $52,779, compared to men-owned at $74,544 – nearly $22,000 gap.
Other studies have highlighted that women-owned businesses receive disproportionately less funding compared to their male counterparts.
According to the Small Business Credit Survey (SBCS), an annual survey of firms with fewer than 500 employees, 69% of women-owned businesses used personal money to help finance their companies, compared to 60% of men-owned firms during the past five years. Along those lines, 27% of women asked friends and family for cash, while only 21% of men did so.
However, 56% of women-owned firms were able to obtain government grants, compared to 53% of men. But when it came to obtaining funding from financial institutions and lenders, only 45% of women-owned companies did so, while 53% of men were successful. The SBCS found that an equal percentage of male and female business owners (41%) obtained funding through a loan, line of credit, or merchant cash advance.
Looking at types of funding, women entrepreneurs most often sought funding by applying for business lines of credit, followed by bank loans, SBA loans, merchant cash advance, and home equity lines of credit. There were varying reasons why women sought funding: 68% said they needed it to meet operating expenses, 53% said they planned to expand, 30% wanted to reduce existing debt payments, and 27% sought to replace assets or make repairs. (Respondents could select multiple response options.)
Notably, according to Federal Reserve data, 45% of credit applications from women were fully approved, 30% were partially approved, and 25% were declined, according to the most recent Small Business Credit Survey, which published last May.
Numerous factors contribute to women find it more challenging to secure funding than men do. Gender bias at financial institutions is an oft-cited reason. With the increasing female entrepreneurship, the average length of time in business for are frequently lower for women-owned businesses. Thus, they have a shorter track record of making timely payments. Typically, their credit scores are lower.
Fortunately, changes in the SMB finance are helping to make access to capital more equitable. The increased use of AI enables lenders to take a deeper look into cash flow and the regularity of sales transactions, which provide a more accurate diagnosis of a company’s financial health. These advances through the incorporation of digital technology in small business lending enable lending institutions to make better risk assessments than when they used factors such as personal credit scores, which might not indicate how prosperous a firm really is.
Fortunately, there are steps that women entrepreneurs can take to obtain access to capital. Here are three ways:
- Diversifying Funding Sources. Apply for funding specifically designed for women-owned businesses, including SBA microloans, and government grants, as well as venture capital funds that prioritize investments in women-led ventures. The SBA’s 8(a) Business Development program provides funding for small, disadvantaged business, including women-owned firms. Other funding options for women include the Amber Grant, 37 Angels, and the Female Founders Fund, just to name a few. By expanding the range of funding avenues, women entrepreneurs can find options that better suit their needs and circumstances.
- Networking: Develop networks and communities that facilitate connections between women entrepreneurs, investors, and business leaders. Attend networking events, workshops, and conferences dedicated to women in business that offer opportunities for collaboration, mentorship, and access to potential investors. The SBA’s Office of Women’s Business Ownership offers programs with those same opportunities, and their Women’s Business Centers provide low-cost training and counseling for women entrepreneurs nationwide.
- Joining Women’s Advocacy Groups. Contact groups such as the Association of Women’s Business Centers (AWBC), a national 501(c)(3) organization that works to secure economic justice and entrepreneurial opportunities for women by supporting and sustaining a national network of over 100 Women’s Business Centers (WBCs). Local WBCs, public-private partnerships between the SBA and non-profit entrepreneurial development organizations across the country, serve economically and socially disadvantaged clients in 38 different languages. The Women’s Business Enterprise National Council (WBENC) provides a network of over 500 corporations and government entities that dedicate themselves to furthering the advancements of female entrepreneurs. By leveraging the purchasing power of large corporations and institutions, women business owners can gain access to stable revenue streams and long-term growth opportunities.
By implementing these strategies, women business owners can work towards leveling the playing field in gaining access to capital in order to thrive. Empowering women entrepreneurs with access to capital is not only a matter of fairness, it’s also a sound economic investment. Unlocking the full potential of women-owned businesses drives innovation, spurs economic growth, and create a more inclusive and prosperous society.