women-owned businesses need financing and loans

Loans and Financing for Women-Owned Businesses

10+ min read • Feb 04, 2022 • Lendio

Women own 42% of all U.S. businesses, have 9.4 million employees, and $1.9 trillion in revenue, according to findings by the National Women’s Business Council (NWB). But even though they’re now slightly more likely than men to start businesses, women continue to face unique challenges in access to financing. According to the Federal Reserve Banks Small Business Credit Survey, women-owned businesses apply for financing at similar rates to businesses owned by men, but are less likely to receive the full amount they sought (43% vs. 48% of men).

Want to know more about lending opportunities for you business? Recently, Lendio’s GM, Denada Ramnishta, talked with Alignable, Accion Opportunity Fund, and SBA about Lending Solutions for Women- and Minority-Owned Businesses. You can watch the webinar here.

 

About Business Loans and Financing for Women-Owned Businesses

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 looking for a small business loan or financing, the following options should be on your radar:

Online Business Loans

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:

  • A streamlined application process. It’s possible to apply for a business loan online and upload your supporting documents in just a few minutes.
  • Qualifying may be easier. There are online loans to fit almost any credit profile, even if you have a 550 credit score. And it may be easier for newer businesses to get approved.
  • Faster funding. Some online business loans can be funded in as little as 24 hours.
  • Generous borrowing limits. You can borrow up to $2 million with an online term loan.
  • Flexible terms. Depending on the loan you choose, repayment terms may range from 3 months up to 5 years.
  • Competitive interest rates. Online lenders may offer interest rates for loans that are on par with the low rates associated with SBA or bank loans.
  • You may not need collateral. Online business loans are often unsecured, which means you don’t need to leverage any of your business or personal assets to qualify.

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. You’ll find more information about SBA loans below.

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 include:

  • Term loans
  • Equipment financing
  • Working capital loans
  • Startup loans
  • Accounts receivable financing
  • Inventory financing
  • Purchase order financing
  • Merchant cash advances
  • Business lines of credit

Each of these loans can serve a different need for women business owners, and you can learn more about them all here. But to give you an example:

If you run a café, you might use a term loan to convert part of your back area into a patio for the summer. If you run a lawn maintenance business, you might choose a merchant cash advance — repaid from your credit card receipts — to cover payroll off-season.

Grants for Women Business Owners

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.

Businesswomen walking and talking

Grants can be tough to get because there’s often competition for them, but look for the ones 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:

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 you’ll know soon enough.

SBA 7(a) Loans

The Small Business Administration 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.

Two women looking at a tablet

  • Loan Amounts: Up to $5 million
  • Repayment terms: Typically 510 years; up to 25 years for real estate financing
  • Minimum credit requirement: Generally 680 or better credit score; no bankruptcies or foreclosures
  • Good for: Working capital needs; refinancing existing business debt; purchasing equipment, land and real estate, and inventory and materials; and updating or renovating existing business premises

Aside from those requirements, your business has to fit the SBA’s definition of a small business and you must have already 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. Here’s why:

According to the last Report to the Congress on the Availability of Credit to Small Businesses in 2017, 29% of small businesses with less than $1 million in annual revenue are denied financing. Fewer than 3% of female entrepreneurs hit the $1 million mark, and that figure drops to below 1% for women of color. 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.

  • Loan Amounts: Up to $5 million
  • Repayment terms: Typically 5-10 years; up to 25 years for real estate financing
  • Interest rate: 7.75% to 10.25%, based on amount and loan term
  • Minimum credit requirement: Generally 680 or better credit score; no bankruptcies or foreclosures
  • Good for: Working capital needs; refinancing existing business debt; purchasing equipment, land and real estate, and inventory and materials; and updating or renovating existing business premises

Aside from those requirements, your business has to fit the definition of a small business. For the SBA, that means:

  • Having a US-based business
  • Being a for-profit entity
  • Being within the maximum limits for annual revenue and number of employees (generally $38.5 million and 150 employees for most businesses)

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.

Here’s why:

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.

SBA Express Loans

The downside to SBA funding is that it isn’t the fastest. 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 somewhat. 

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:

  • The maximum loan amount is $350,000
  • You may need collateral for loans over $25,000
  • There’s less paperwork and documentation required to apply
  • The minimum credit score requirement is 650
  • You’ll need strong revenues to qualify

Interest rates on SBA Express loans are different from 7(a) loans. You’ll pay the prime rate (currently 5.5%) plus 4.5 to 6.5%. 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.

Microloans

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. They can be a good fit for women who:

  • Haven’t been in business that long
  • Have smaller annual revenues
  • May not be able to qualify for other business loans, based on their credit
  • Don’t need as much financing for their business

A microloan is worth considering for home-based business owners with smaller operating costs or mobile business owners like food truck operators or DJs.

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%.

You could use it to:

  • Meet your working capital needs to cover initial expenses
  • Buy inventory or supplies
  • Outfit your business premises with furniture or fixtures
  • Buy necessary machinery or equipment

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.

Happy group of women

Both for-profit and nonprofit organizations offer microloans to women, as well as minorities and other business owners:

  • Accion is a nonprofit that offers up to $50,000 in microloan funding to brand-new and established women-owned businesses. The amount you can borrow depends on which state your business is located in.
  • Kiva is a nonprofit that offers crowdfunded microloans of up to $10,000 with no interest. Repayment terms stretch up 36 months. (As a side note, Lendio’s corporate employee donation program works closely with Kiva to provide microloans to small business owners across the globe, too.)

As with any other loan, take your time to review your financial position, the interest rate, repayment terms and the minimum requirements to qualify. If a single microloan doesn’t fully meet your business funding needs, you could qualify for more than 1 loan.

SHARE

Lendio

Lendio's team of experts is here to help you with every nook and cranny of your business. We'll make sure you have the best advice for financing, operations, management, hiring, and much more.