Over the last decade, women-owned firms grew by 45 percent to 11 million businesses, according to the 2016 State of Women-Owned Businesses Report commissioned by American Express. That’s five times faster than the national average, and now, more than one in three private businesses are owned by women.
Pain points for women-owned businesses
But not everything is looking rosy for women-owned businesses. Average revenue for a woman-owned business is just $143,000 per firm, about 80 percent less than the average revenue earned by businesses owned by men. When it comes to using financing to expand businesses, men are far more aggressive. According to the SBA Office of Advocacy, 34.3 percent of female business owners didn’t use any form of financing to start their business compared to 21.9 percent of male owners.
Whether it’s due to lower revenues or other issues, many women struggle to find financing to grow their businesses. For the most part, financing options for small businesses are the same no matter who the owner is. But there are some sources specifically for female entrepreneurs, and in this guide we explain how female business owners can maximize opportunities for financing success.
Small Business Loan Options for Women
Small Business Administration-backed loans
The Small Business Administration (SBA) has a department dedicated to growing women-owned businesses, and part of what the SBA does is provide financial assistance to small businesses. The SBA has several loan programs, but the most common one is the 7(a) loan program. The 7(a) loan is a general loan, which means it can be used for anything from real estate purchases to working capital. However, the bank underwriting your SBA loan may limit how you can use the proceeds of the loan.
With the 7(a) loan, the SBA pays lenders up to 85 percent of the loan value if a borrower defaults. This encourages banks to issue business loans to businesses that might otherwise be considered too risky. As a business owner, you may have to put up collateral for 15 to 50 percent of the loan that the SBA doesn’t guarantee. Business owners can apply for SBA 7(a) loans up to $5 million.
Not only does the SBA guarantee part of the loan, the interest rates on these loans are limited by the SBA. Lenders cannot charge origination fees or burdensome packaging fees on their SBA loans. However, you should expect to pay a guarantee fee. The guarantee fee is a percentage of the total principal value of the loan paid to the Small Business Administration in exchange for guaranteeing the loan. The SBA only assesses fees on the portion of the loan they guarantee.
The table below shows the maximum interest rates and guarantee fees on SBA loans.
With ceilings as low as 6.5%, SBA-backed loans can be great deals, but they are hard to get. Lenders will consider your personal and business credit history, your business assets and your ability to make money. Despite giving women-owned businesses special consideration for SBA financing, just 15 percent of 7(a) loans issued in 2017 went to female owners.
Shannon McLay, founder of the Financial Gym in New York City, tried to take out an SBA-backed loan to expand her business to a second location. She applied for a $1.5 million loan, and she put up her personal residence as collateral. However, several banks turned her down. She explained, “Even though the government guarantees a big part of the loan, you still have to go through a bank’s underwriting process. I thought the [Financial Gym] had sufficient revenues to get a loan, but I was turned down. The bank explained that they usually issue loans to franchises, restaurants and retail shops rather than service industries.”
These are some of the best companies to work with if you want to apply for an SBA 7(a) loan. They offer strong lending programs, and they each fill unique niches. However, if you prefer to work with local lenders, you can consider working with one of the top SBA lenders in your region.
Business lines of credit
A business line of credit allows you to borrow money whenever you need it, up to your specified credit limit. A common credit limit is one to two months of gross revenue, though newer businesses may receive less. Credit limits vary by lender.
Annual fees on lines of credit can be a few hundred dollars per year, but the interest rates can be lower than credit card interest rates (they can also be much higher). Plus, you’ll only pay interest when you’re borrowing money, and you’ll build credit.
Some banks offer SBA-guaranteed lines of credit called CAPLines. Because the SBA has a goal of funding more women-owned businesses, a CAPLine may be a good fit for female business owners. CAPLines are small business lines of credit where the SBA backs 75 to 85 percent of the credit line up to $5 million. The CAPLines have specific use requirements that include fulfilling customer contracts, meeting seasonal needs, or consolidating short-term debt. They are not as flexible as typical business lines of credit. The interest rate on a CAPLine could be up to 10.75%.
You can also use Lender Match from the SBA to find local lenders that offer the CAPLine program.
Short-term business loans allow business owners to borrow a small amount of money and pay it back within three to 36 months. Such loans allow businesses to cover seasonal inventory costs or to take on costly projects with high payoff. As convenient as these loans can be, they can also be very expensive, with some loans carrying APRs up to 99%. You can compare short-term business loan offers (as well as a variety of other small business loans) with LendingTree, our parent company.
Before resorting to lenders that require extortionary interest rates or difficult terms, look into SBA Express Loans. These loans have a maximum interest rate of 10.75% (for loans less than $50,000) and offer terms up to seven years. The SBA backs these at 50 percent, so you’ll only need to come up with collateral for the remaining 50 percent of the loan. You can use Lender Match from the SBA to find local lenders that may help you qualify for a loan.
Additionally, the companies below offer short-term loans, and they have specific programs that help female business owners qualify for the loans. We’ve listed their criteria for all business loans, not just short-term loans.
Equity Financing Opportunities for Women
Equity financing means that you’ll sell shares of your company in exchange for cash. Generally, privately held companies will look to angel investors for their first rounds of equity financing and venture capital firms for large-scale financing.
Angel investors and venture capital firms want to invest in firms with high revenue, potential to scale, and a strong balance sheet.
The process for getting venture capital is not easy, especially for women. According to an analysis by TechCrunch, just 10 percent of all venture capital dollars went to businesses with at least one female founder. On top of that, only 7 percent of partners at the top 100 venture capital firms were women.
McLay, of the Financial Gym, explains her journey to getting venture capital money: “I used my own money for the first two years of my company, but by 2015 I ran out of my own money and started looking for outside investors. I tried working with some of the women-only venture capital firms, but I got the feedback that my brand wasn’t sexy enough. Ironically, even though 95 percent of the traffic at the gym is women, my first angel investor was actually a man.”
Below are some firms that focus on funding companies with at least one female founder.
Angel investors are typically the first equity investors to fund a company. Angel investors invest their own money into startups. Since it’s their money on the line, angel investors tend to be highly motivated to see a business succeed, though they expect many of their investments to fail.
These are a few prominent angel investing groups that focus on funding women-owned businesses:
37 Angels: 37 Angels allows eight companies to pitch to them every two months. Founders receive $50,000 to $150,000 in seed money. The majority of companies funded by 37 Angels are technology or consumer packaged goods companies. Apply for the pitch through Gust.
Women’s Capital Connection: Women’s Capital Connection works with female founders in the Midwest region. The company has invested in 14 companies since 2008. Many of the companies receiving funding have a health and wellness focus. Learn more about their funding process here.
Pipeline Angels: Pipeline Angels is a coalition of women and nonbinary femme investors looking to change the world through business. They host annual pitch summits around the United States. Applying for the pitch summit costs $40. You can learn more about the schedule and opportunities to pitch through Pipeline Angels’ pitch summit schedule.
Built by Girls Ventures: Built by Girls Ventures (BBG) backs early stage consumer tech and consumer internet products.Your company needs at least one female founder to be considered by BBG. They back companies that already have some market traction, and their investment is generally between $100,000 and $250,000. Most BBG investments come through personal introductions, but you can pitch to BBG via their email firstname.lastname@example.org.
Venture capital firms
Venture capital firms invest in established companies with room for profitable scaling. These firms invest in many startups and generally provide larger investments than angel investors.
These are a few venture capital firms that focus on funding businesses with at least one female founder.
Women’s Venture Capital Fund: The Women’s Venture Capital Fund invests in digital media companies and companies with a focus on sustainability. The fund focuses on women-owned businesses in the Pacific Northwest and California.
Female Founders Fund: The Female Founders Fund invests in e-commerce and web-enabled services. They look for women-run businesses with a proven track record and an opportunity to scale. You can pitch to them by sending a deck with relevant materials to email@example.com.
Aspect Ventures: Aspect Ventures funds early-stage tech companies and helps founders fundraise in later-stage funding rounds. Aspect isn’t entirely focused on female founders, but they have a track record of funding businesses founded by women.
Alternative Business Financing Options to Consider
Small business grants for women
When it comes to funding, business grants sound like a great way for women to get a venture off the ground. However, business grants tend to be competitive and offer relatively small sums. A few grants offer recipients more than $100,000, but those are the exception. Most offer less than $5,000 per recipient.
Despite the small sums, grants offer other advantages. Business owners who win grants can use them for publicity or to gain credibility in the local business community.
These are a few national grants that female business owners can consider.
The Eileen Fisher Women-Owned Business Grant Program: Women-owned and -led companies with revenues less than $1 million may qualify for a grant of at least $10,000. Companies must have founding principles of social consciousness and innovation. Grants are awarded to the companies that have a clear development path and need for the funds.
Check the website in spring 2018 to start applying for the next round of grants.
WomensNet Amber Grants for Women: Women with business ideas can receive a $500 grant to move their idea forward. You don’t need a formal business plan to win, you just need to share your idea with WomensNet.
WomensNet issues a grant every month. Among the 12 grant winners each year, one woman will be awarded an additional $1,000 for her business. You must pay a $7 fee to apply.
InnovateHER: The SBA Office of Women’s Business Ownership sponsors this challenge. The competition gives entrepreneurs the opportunity to pitch products that will help the lives of millions of women. The top three competitors win grants between $10,000 and $40,000. In previous challenges, applications were open from January through early June.
Cartier Women’s Initiative Awards: The Cartier Women’s Initiative Awards is a worldwide business plan competition designed to support female entrepreneurs. Applicants’ businesses should be in their second or third year, and leaders must have a plan to take their company to the next level. Each year, a panel selects three finalists from six global regions. One finalist from each region will win a grant of $100,000, and the remaining 12 finalists will win a $30,000 grant.
Female business owners can apply every year from January through August.
Additional resources for female entrepreneurs
This is merely a collection of financing opportunities that give female business owners special consideration. There are many more types of small-business financing available to all kinds of entrepreneurs, not just women, like non-SBA-backed loans of various terms, working capital loans, receivable financing, and equipment loans.
When it comes to starting and growing a business, the best resources aren’t always financial. Female business owners should look into some of the programs offered by their local Women’s Business Center, which are organizations sponsored by the Small Business Administration. Women’s Business Centers connect female entrepreneurs with the people and resources they need to grow their businesses.