Key Tips for Financing Women-Owned Businesses

When you look at the statistics of women in leadership roles, it is quite abysmal proving the glass ceiling does exist. Although women outnumber men in the workforce, they only represent an average of 25% in senior executive roles with only 5.8% holding the title of CEO. Despite this, there is a quiet success story out there and that is 42% of all businesses in the US are owned by women.

It is a sad fact that women, in general, earn less than their male counterparts, and the gender divide doesn’t appear to be going anywhere in the near future, therefore, it’s no wonder they have taken matters into their own hands with more women starting their own businesses and making an impact on the economy. Their biggest challenge is financing their start-up business and driving growth.

Historical Trends

In 1972, only 402,000 businesses were owned by women representing only 4.6% of all businesses. In 1997, 5.4 million business was owned by women increasing to 7.79 million in 2007. Since 2007 women-owned businesses have increased by 58% and in 2019 women-owned businesses in the US sat at 12.94 million.

Today, women-owned businesses employ 9.2 million people which is only 8% of the private sector workforce and generate $1.8 trillion in revenue which is just 4.3% of the total private sector revenue. Between 2007 and 2018, businesses owned by women of color grew by 163%. In 2018, women of color accounted for 4.7% of women-owned businesses generating $396.6 billion in revenues employing 2.2 million people.

While on the surface this appears to be a great gain for women-owned businesses, their share of the revenue and the workforce is not keeping up with overall trends. In the past decade, their revenue share only increased from 4 to 4.3%, and employment only increased by 2%.

Age and Industries

Women are more likely to be attracted to starting a business in three industries, healthcare, and social assistance, professional scientific and technical services along with other services. Men are more likely to launch businesses in construction and manufacturing. The highest total revenue for women-owned businesses is in wholesale sitting at 17% with retail coming in a close second at 16%. Professional, scientific, and technical services account for 10% of the revenue. The industries of women-owned businesses that employ the most people are in healthcare and social assistance at 20%. Accommodation and food services account for 16% and administrative, support, and waste management services account for 13% of women-owned businesses.

Financing for Female Entrepreneurs

Like gender disparity and the pay gap, women experience the same issues when it comes to financing. Men are more likely to obtain equity financing or loans than women. A study published in the Academy of Management Journal in 2018 found the type of questions an investor asks is dependent on whether or not they will invest in a business. When venture capitalists ask promotion related questions, they are more likely to invest than when they ask prevention-based questions. The study found that women were asked far more prevention-based questions than their male counterparts when looking to raise financing.

Despite the steady growth and stability expected by female-led businesses, financial institutions are reluctant to provide funds to women entrepreneurs especially in industries traditionally dominated by males. This suggests a strong chance that women are being treated differently from men when it comes to financing a business.

Women are more likely to start a business than men and you would think that because women in small businesses have a higher success rate than men, they would make a good candidate for funding. This may have something to do with a lack of women in the venture capital market.

Although women have come a long way climbing the corporate ladder, bridging the gender and pay gap along with starting a business or seeking funding, there are still barriers to success. Keep in mind that 98% of venture capital goes to men according to data from research firm PitchBook. The statistic for women of color is worse as they have only managed to raise 0.0006% of the $424.7 billion in total tech funding since 2009.

Finding Small Business Grants

If you are a female entrepreneur, its vital you have access to funding. The following is a list of grants available to women who wish to start or grow their own business. Unlike a small business loan, these grants do not need to be paid back as an initiative to help women entrepreneurs succeed. As you can imagine, competition for these grants is high, the list below gives you a good place to start.

There are also a variety of grant options for certain categories of businesses like minority-owned businesses, women-owned businesses, mission-oriented businesses, businesses operating in specific communities, and veteran-owned businesses for women leaving the military wishing to start their own business.

Make sure you do your research because every small business grant is unique with its own set of requirements. The first place to start is to check out grants.gov to find a grant that would be a good fit for you. Attend small business conferences or online forums along with attending live and online networking events where you build up a strong connection with others in your industry. It is surprising who in your network has other contacts and may be able to recommend you and your business as worthy of investment.

Check the requirements as most grants are specific in relation to demographics, education levels, and even how long you have been in business which will save you time applying for grants that aren’t a good fit for you or your business.

Nothing happens by chance, make sure you schedule time weekly, bi-weekly, or monthly to apply for grants. Persistence is the key and the payoff, of course, is winning the grant package. Ensure your application stands out and make sure you apply within the timeframes specified. Create a timeline using a spreadsheet or other applications like Trello or Asana to keep track of the grants you wish to apply for, their deadlines, and track the outcomes.

Other Funding Opportunities

Funding for women in business is not limited to grants, you can certainly apply for small business loans for women as well as women-only business accelerators as well as venture capital firms.

Start-Up Business Loan

A startup business loan works like any traditional loan and encompasses any type of financing for start-ups with little or no business history. Debt-based, it is not always easy to access funding as a new business however it is not necessarily a barrier to success. There exists a variety of business loans and financing methods available to women looking to start up a business including; asset-based loans, business credit cards, SBA microloans, personal loans, friends, and family, along with crowdfunding.
The important thing to look for is a loan that right for you, that meets your unique funding requirements and one you can afford.

Equity Financing

If you don’t have the capital to start up and finance your business, you have two options, debt financing or equity financing. Equity funding is where you would sell shares in your business and you use the capital from the sale to grow your business. This does mean giving up percentage ownership of your business.

Each share that is sold is represented in the form of common stock, For instance, if you owned 100% of the business with 1000 shares and you sold 50% of your business you would end up with 50% of the shares (500) and the investors become shareholders of your business. As a shareholder, they will benefit from the dividends paid out from those shares as well as profit from the sale of those shares down the track.

These shareholders also get voting rights in your business and have a voice in decision making. Equity investors can range from angel investors or venture capital firms, Angel investors could include family and friends, seed investor, or business angels where they look to help you get your business off the ground. They might include wealthy individuals, family or friends, and even retires venture capitalists who believe in you and your business idea.

You can find angel investors who specifically dedicates funding to female entrepreneurs and minority business owners. The downside, of course, is you lose a percentage of ownership in your company.

Venture Debt Financing

Securing traditional financing as a start-up is difficult enough let alone being a woman therefore opting for equity funding is an option instead. While you may not want to give up ownership, venture debt financing can be an option.

Venture debt financing means rather than taking money from an investor in exchange for equity in the company, it becomes a form of small business loan in which investors take on debt. Generally structured similar to traditional loans, the funding isn’t issued by venture capital firms, but rather specialized venture debt lenders. These can include banks, private equity firms, hedge funds, business development companies (BDCs), along with other outlets. Occasionally, these loans are issued as business lines of credit or equipment financing.

The answer, if you are a female entrepreneur, seek out a mentor who has a lot of fundraising experience that is not associated with your business. Talk to other female entrepreneurs who have raised capital for their business and learn from their experience.

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