Guide to Small Business Loans for Women

Women-owned businesses have more difficulty getting loans than companies that are majority-owned by men. Female-led firms applying for loans are more likely to get turned down and less likely to get all they requested. While there are no lending programs that are exclusively for women-owned companies, some sources of financing are more likely to approve a loan application from a woman-led business than others. A financial advisor can help you with any loan or other questions you have.

The annual Small Business Credit Survey by the Federal Reserve quantifies the problems female business owners face when applying for a business loan. The 2019 edition found that loans were the main method of financing for all firms. But while 50% of men-owned firms had their funding needs met, only 43% of women business owners had the same experience.

The Fed survey said women-owned businesses were denied credit more often because they had a low credit score or too much existing debt as reasons compared to other businesses. However, women applicants were less likely to be denied for reasons such as insufficient credit history, insufficient collateral and weak business performance.

Despite the apparent need for more credit for women-led companies, lenders cannot have business loan programs that are restricted to women applicants. The federal Equal Credit Opportunity Act bars creditors from discriminating when granting loans or on any other aspect of credit on the basis of sex, as well as gender, among other borrower characteristics.

Loan Sources for Women-Owned Businesses

However, women-owned businesses obtain loans every day. And there are some sources that have better records of lending to female-led companies than others. Among such sources are government agencies, for-profit organizations and nonprofit entities.

Federal government – Small Business Administration-backed loans are made through a network of participating financial institutions in amounts ranging from $500 to $5 million. Programs such as the main 7(a) loans and streamlined Express Loans are open to all businesses, including women-owned ones subject to size limits and other requirements like having been denied loans from other sources. The 8(a) program specifically targets disadvantaged businesses. SBA-backed loans generally have costs comparable to other loans but offer lower down payments and easier qualification.

Banks and credit unions – These are the primary source of business loans, used by 55% of companies the Fed surveyed. Banks and credit unions offer a variety of repayment terms and loan amounts as well as competitive interest rates and fees. But when it comes to women-owned businesses, not all banks are created equal. Based on the Fed credit survey, about 58% of women applications to large banks are approved, while that number rises to 64% when small banks are looking at the applications.

Online lenders – Women-owned businesses have more success with online lenders, such as peer-to-peer groups, than with banks. About 85% of loan requests by women-led companies were approved by online lenders. That’s a higher approval rate than for any other type of business, including those led by non-Hispanic white, African-American and Hispanic businesspeople. Online lenders tend to have higher interest rates and fees than banks, but may use different criteria to qualify borrowers, resulting in higher approval rates for borrowers such as women business owners.

Microloans – Small loans for amounts from $500 to $50,000 are also available to women-led companies. The SBA has a guaranteed microloan program but these loans are also available without guarantees from a number of nonprofit credit organizations. Although they aren’t suitable for borrowers seeking large amounts, microloans can work for service businesses and others with modest capital needs.

Angel investors and venture capitalists – Angels and venture capitalists primarily make equity investments, purchasing ownership in exchange for cash. However, they may also provide loans, especially in young, fast-growing companies.

Crowdfunding – These kinds of orgnizations connect business owners with individuals, each of whom is willing to put up a small portion of the required financing. Credit scores and other traditional credit qualifications are generally not relevant with crowdfunding. What matters more is making a convincing presentation and having a product that connects with potential crowdfunders.

Family and friends – As is the case with crowdfunding, loans from family and friends are not likely to turn on credit history or the existence of collateral. However, this source of funding requires having family and friends with adequate financial resources. Also, if a business funded this way fails, it could strain important personal relationships.

Credit cards – A Fed survey found 52% of small businesses used credit cards, second only to 55% that used bank loans. Credit cards charge high interest rates compared to other funding sources, but the convenience makes up for it for many business borrowers.

The Bottom Line

While women-owned businesses have a harder time accessing credit than male-led companies, business loans are available. Some sources of financing seem more open to women-led companies than others, and female entrepreneurs can increase their chances of getting a loan by applying to the right lender. Finally, keep in mind that grants for women-owned businesses are also an option.

Tips for Business Borrowers

• If you are a female business owner looking for business financing, consider working with an experienced financial advisor to guide you through selecting and applying for a loan. Finding the right financial advisor who fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area in five minutes. If you’re ready to be matched with local advisors who will help you achieve your financial goals, get started now.
• While there are no women-exclusive lenders, many sources of assistance tailored for female entrepreneurs can help women solve the funding puzzle. They include the SBA’s national network of Women’s Business Centers and the National Association of Women Business Owners. No matter where you choose to seek a loan, be sure to follow basic loan application guidelines.

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