Small Business Loans for Women—A Guide to Finance Your Business

Small Business Loans for Women—A Guide to Finance Your Business article image.

Women own 1.1 million U.S. businesses, or 19.9% of them, according to Census data. And while the influence of women entrepreneurs is growing, raising capital can still be difficult. Just 25% of women entrepreneurs seek financing, compared with 34% of men, the WBENC reports. Women are more likely to finance businesses with credit cards, while men are more likely to use equity investors. Where can female entrepreneurs find loans?

Types of Small Business Loans for Women

Women business owners tend to be concentrated in service industries with lower sales, own younger businesses and work fewer than 20 hours per week, the Small Business Administration (SBA) reports. Some 88% of women-owned businesses have annual revenues under $100,000. While these factors can make it harder for women to get business loans, there are still many options.

  • SBA loans: The SBA guarantees business loans made by partner banks. You'll receive a lump sum and repay it in regular monthly installments. If you default, the SBA guarantees it will pay back 75% to 85% of the loan. SBA loan interest rates and terms are typically comparable to those of non-guaranteed loans.
  • Bank loans: Banks and credit unions offer both long-term and short-term business loans. You'll generally need a certain amount of revenue, years in business or collateral to qualify. Most banks also require financial statements and projections, tax returns, a business plan and other documentation when you apply for a loan.
  • Online business loans: Compared with traditional banks, online-only lenders tend to have less stringent criteria for borrowers and can often approve and issue loans within days or hours instead of the weeks or months traditional loans may require. However, online-only lenders may charge higher interest rates and fees. BlueVine, Funding Circle, Lendio and OnDeck are popular online small business lenders.
  • Personal loans: Personal loans from banks or online lenders can be used for any purpose, including your business. Since the loan is based on your personal creditworthiness, repaying it won't build your business credit like a business loan would. Online personal loan lenders include Avant, LendingPoint and Upstart.
  • Peer-to-peer loans: Peer-to-peer lending websites match borrowers with individual or institutional investors who make personal or small business loans. You'll need to prove you're creditworthy to qualify. Prosper and Peerform are two popular peer-to-peer sites.
  • Equipment loans: Need new equipment? Like auto loans, equipment loans use the equipment itself as collateral. You can get them from equipment financing companies, equipment manufacturers and resellers.
  • Accounts receivable financing: With this method (also called factoring), you sell your outstanding invoices to a factor, who pays you a percentage of the amount due. The factor then collects on the invoice; if they succeed, you receive the rest of the money minus a factoring fee.
  • Microloans: Microlenders including nonprofit, community and government organizations provide small loans, often to underserved business owners. For example, the SBA makes microloans of up to $50,000. Popular microlenders include Accion Opportunity Fund and Kiva.
  • Business lines of credit: Like a credit card, a business line of credit lets you draw as much money as you need, up to your credit limit. You repay only what you borrow; as you pay money back, it becomes available to borrow again.

What Defines a Woman-Owned Business?

The SBA doesn't offer women-specific business loans, but to level the playing field for women business owners, the federal government aims to award at least 5% of all federal contracting dollars to women-owned small businesses each year. For award purposes, the SBA defines two types of women-owned businesses.

Women-owned small businesses (WOSBs) must:

  • Qualify as a small business based on SBA size standards
  • Be at least 51% owned and controlled by women who are U.S. citizens
  • Be managed day-to-day by women, who must also make long-term decisions for the business

Economically disadvantaged women-owned small businesses (EDWOSBs) must:

  • Meet all the requirements of a WOSB
  • Be owned and controlled by one or more women, each with:
    • a personal net worth under $750,000
    • $350,000 or less in adjusted gross income averaged over the previous three years
    • $6 million or less in personal assets

Getting certified as a WOSB or EDWOSB can open new opportunities. You can get certified at beta.certify.sba.gov or with an approved third-party certifier.

Additional Ways Women Can Get Money to Start a Business

There are other ways to get funding besides loans.

  • Grants or awards: Competition for these is stiff, and you'll have to meet the granting organization's criteria. However, there are grants and awards for business owners of all kinds, including the Visa She's Next Black Women-Owned Business Grant Program, WomensNet grants and the Cartier Women's Initiative. GrantsforWomen.org lists all types of grants for women; Grants.gov is a database of federal grants.
  • Family and friends: If you have loved ones who can afford to invest in your business or lend you money, this can be an option. Just be sure to treat the relationship professionally and document any money that changes hands.
  • Angel investors: These wealthy individuals invest in small businesses, either individually or as part of angel groups. Most angels have business experience and can offer advice along with financing.
  • Crowdfunding: Websites such as WeFunder, FundRazr and IndieGoGo let business owners "crowdfund" from individuals to finance their businesses. You'll need an exciting product, marketing skill and perseverance to achieve your crowdfunding goal.

The Bottom Line on Business Loans for Women

No matter what type of financing you're seeking, there are plenty of resources to help. Get information about business loans for women from your state and local economic development agency, Small Business Administration district office, SCORE chapter, Women's Business Center or Small Business Development Center.

Getting a small business loan generally requires solid business and personal credit. Review your business credit report, personal credit report and personal credit score before filling out loan applications. You can start to build business credit by getting a federal Employer Identification Number (EIN), forming a corporation or LLC, and opening bank accounts under your business's name. Paying a business loan back on time can help build your business credit score, which can make it easier to get financing in the future.

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