Apr 9, 2019
Women continue to be a force to be reckoned with on the small business landscape. They own 4 out of 10 US businesses, and in 2017 alone, 1,821 new women-owned businesses launched every single day.
In fact, women are slightly more likely to start businesses than men. However, they face some unique challenges when it comes to growing their businesses. Chief among them is access to financing. According to a Federal Reserve report, women were less likely to receive loans they applied for compared to men and more likely to face financial gaps in their business.
The good news is that business loans for women aren’t out of reach. There are several loans women can use to run and grow their businesses, whether they need a source of short-term working capital or funding for a large-scale investment.
If you’re a woman who’s looking for a small business loan, these are the 5 best options to consider:
The Small Business Administration doesn’t make loans; instead, it partners with lenders across the country to guarantee loans extended to women and other small business owners. The 7(a) loan program is designed to satisfy long-term funding needs. Here are the specifics business owners need to know:
Aside from those requirements, your business has to fit the definition of a small business. For the SBA, that means:
You can plug your business specifics into the SBA’s Size Standards Tool to determine if you meet the size guidelines.
Additionally, you can only qualify for an SBA 7(a) if you’ve been turned down for other types of financing. That requirement is one of the reasons 7(a) loans may be appealing to women business owners.
According to the Fed, 29% of small businesses with less than $1 million in annual revenue are denied financing. For women-owned businesses, 88% generate less than $100,000 in revenue. With so many women running smaller businesses, it stands to reason that the odds of qualifying for a traditional bank loan may be slim.
If you’ve been turned down for a loan elsewhere, a 7(a) loan could put a substantial amount of funding in your hands to grow your business. The biggest hurdle for women may be meeting the credit score requirements.
Male business owners tend to edge out women entrepreneurs when it comes to credit scores by 10 points on average. But if you’ve got a solid credit rating, or you’ve got time to work on improving your personal and business credit scores, a 7(a) loan may be in reach.
There’s one important thing to know about 7(a): funding isn’t super fast. It can take several weeks and sometimes even several months for your loan paperwork to be processed and approved and for the loan to be funded.
The SBA Express loan program speeds up the process. This loan has an accelerated review timeline; the SBA follows up on applications within 36 hours after receiving them.
It can still take several weeks to get the loan funded, but it’s generally faster than a 7(a) loan. Here are the details to know about SBA Express loans:
Interest rates on SBA Express loans are different from 7(a) loans. You’ll pay the prime rate (currently 5.5 percent) plus 4.5 to 6.5 percent. That added cost makes them a little more expensive than 7(a) loans.
Express loans can be used to cover any of the same things you could use a 7(a) loan for, just in smaller amounts. Also, you could get an SBA Express loan as a revolving line of credit versus a lump sum, making them a flexible funding option for women.
The business lending landscape has gone well beyond banks, with alternative lenders offering loans online.
Some of the advantages of getting a loan for your business online include:
However, you may have to sign a personal guarantee if you’re getting a business loan with an online lender. (This requirement also applies to SBA loans.) A personal guarantee means you assume personal responsibility for the debt, even if you’re borrowing money for your business. If you default, the lender could attempt to attach your business and personal assets to recover the debt.
Something else to know: online business loans aren’t all the same. They come in lots of different flavors, including:
Each of these loans can serve a different need for women business owners.
For example, if you run a yoga studio, you might use a term loan to convert part of your studio to a hot yoga room. Or you might choose a merchant cash advance — which is repaid from your credit card receipts — to cover payroll during a seasonal lull.
The great thing about online loans for women entrepreneurs is that there are so many ways you can put them to work. Those options can allow you to grow your business in the way — and at the pace — you want.
Microloans are what they sound like: small loans.
These loans for women entrepreneurs are typically much smaller compared to the other loan options discussed so far. These loans can be a good fit for women who:
A microloan is worth considering if you run a home-based business, which may have smaller operating costs, or a mobile business, like a food truck or a small catering business.
You can find microloans for women from a few places. The first is the SBA.
The SBA’s microloan program offers up to $50,000 in funding for qualifying businesses. According to the SBA, the average microloan is $13,000. The maximum loan repayment term is 6 years, and interest rates range from 8 to 13 percent.
So how can a microloan help your start-up? You could use it to:
The only thing you can’t use a microloan for is refinancing existing debt or purchasing real estate. And you don’t necessarily need to be starting a business to use a microloan. They can also work for women with existing businesses.
Yes, actually. There are both for-profit and nonprofit organizations that offer microloans to women, as well as minorities and other business owners. Here’s the scoop on a few of them:
As with any other loan, take time to compare the amount you can borrow, the interest rate, repayment terms and the minimum requirements to qualify. And keep in mind that if a single microloan doesn’t fully meet your business funding needs, you may be able to qualify for more than 1 loan.
A grant and a loan aren’t the same; grants generally don’t have to be repaid. But it’s worth mentioning grants for women in business as a funding option.
Grants can be tough to get because there’s often quite a bit of competition for them. There are general business grants you can apply for, as well as some specifically geared toward women. Federal and state government agencies offer some grants; nonprofits and private business organizations offer others.
The best thing you can do when it comes to finding grants to help fund your business is to keep a broad horizon. Here are some of the grant options we’ve found for women entrepreneurs:
If you’re thinking of applying for a grant, read the application package from cover to cover to make sure your business is actually eligible and you understand what’s needed to apply. It might be helpful to write up a checklist of things you need to complete the application if the grant package doesn’t come with one, just to stay on track.
Also, keep in mind that it can take months for your grant application to be reviewed. Be patient, and if you need funding for your business sooner, go back and reconsider your loan options.
Rebecca Lake is a financial journalist covering small business, investing, and personal finance. Her work has appeared online at U.S. News and World Report, Investopedia, and The Balance. She also works with top banking and insurance brands, including Citibank, Ally, Discover Bank, and AIG.
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