Female entrepreneurs are staking their claims in the business world: as of 2018, there are 12.3 million women-owned businesses in the US, a 58% increase since 2007. In fact, women are now more likely to start a business than men.
At the same time, there’s a massive funding gap between men-owned and women-owned businesses, and unfortunately, it’s getting larger. As CNBC reports, the average loan for women-owned businesses in 2016 was $99,000, but in 2017 that number went down to $57,000. Meanwhile, the average business loan for businesses owned by men was $103,604.
Part of improving this gap is helping women entrepreneurs understand all of their options when it comes to taking out business loans. Read on to learn about the best loans for your woman-owned business.
Best for: Women with excellent credit who want the lowest rates
Business loans from a traditional bank are some of the most sought after due to their relatively low interest rates. Unfortunately, they’re also some of the hardest to qualify for.
To qualify for a business bank loan, good to excellent credit (a personal credit score of at least 700) is a must. You’ll also have to show that your business is profitable, and most banks will want to see that you’ve been in business for at least 6 months–if not 2 years.
In addition to applying at national banks, you might want to try your local credit union. Credit unions often offer some of the lowest rates on the market, and if you’ve already built a relationship with a credit union in your area, they might be more willing to lend to you.
Best for: Women who can’t get approved for traditional loans or women who want to borrow large amounts
The US Small Business Administration (SBA) administers the SBA loans program. These small business loans are offered by banks, private lenders, and credit unions but guaranteed by the SBA. Because the government guarantees up to 85% of the loan, SBA loans may be an option for borrowers who can’t access traditional loans.
Another major draw of SBA loans is that you can borrow anywhere from $500 to $5.5 million. Plus, the interest rates on SBA loans are very reasonable, albeit slightly higher than the best rates out there. Unless you have excellent credit, qualifying for an SBA loan will probably get you some of the lowest rates possible.
People are often deterred from SBA loans due to the extensive paperwork and sometimes lengthy application process. Many borrowers have to go through the application process several times before finding the right lender, and some never find a good match at all. You’ll also need to supply a business asset as collateral for most SBA loans, which means that if you can’t repay the loan, you risk losing that asset.
Best for: Women with bad/no credit or women who want to get their money fast
If you can’t qualify for a bank loan but still want to borrow money at affordable rates, online loans may be the solution you need. While some online lenders are known for short term loans with predatory rates, a multitude of online loans offer good terms and decent interest rates.
You might have an easier time qualifying for an online loan than the other options we’ve listed. Many online lenders have lower credit score requirements than traditional banks, and some are willing to look past your credit history and consider other factors when determining whether or not to lend to you.
One of the biggest perks of online loans is that the application process tends to be quick and easy, requires very little paperwork, and can be completed entirely online. Many online lenders advertise that your loan can be approved and funded in as little as 1 day. Most online lenders also offer pre-approval tools that will instantly show you what types of loans and loan rates you qualify for before you even apply.
Best for: Women who only want to borrow small amounts
Microloans are small loans, usually less than $50,000. They’re often used by borrowers who can’t access traditional credit or don’t have collateral. Some microlenders specifically target women-owned businesses. A number of lenders and nonprofit organizations specialize in microloans, including Kiva, Accion, Upstart, Grameen, and more.
The SBA also has a microloan program for business owners. Loan amounts range up to $50,000, although the average SBA microloan is $13,000. Interest rates range between 8% and 13%, and many of these microloans require collateral.
Business Line of Credit
Best for: Women who want flexible funds they can borrow from and pay back at any time
A business line of credit is more like a credit card than a loan in that it gives business owners access to funds on an as-needed basis up to a specified amount. In other words, you can borrow from your line of credit whenever you need it, as long as you don’t exceed your limit, and you can pay it back in monthly payments of your choice, as long as you always pay the minimum.
This option gives you some extra flexibility if you’re unsure of how much money you’ll need and when. It also allows you to pay off the amount borrowed quickly to avoid interest fees. However, the interest rate on a line of credit may be higher than what you could qualify for with a business loan, and many lenders slap on additional charges as you pay off your balance. For this reason, a line of credit is best for short-term needs, whereas a loan is best for large investments that will take years to repay.
Closing the lending gap requires women entrepreneurs to explore their funding options thoroughly to find lenders that are a good fit for their needs. Whether you have excellent credit or no credit at all, know that there is a range of options out there to get you started.