Small Business Loans for Women & Other Financing Options
- February 22, 2018
- Posted by: Jeff Gitlen
- Category: Small Business Loans
Being a female entrepreneur can come with its challenges.
On top of building a business, many women business owners juggle numerous responsibilities like family or caregiving commitments.
For these reasons, running a business as a woman can feel sometimes like you’re Ginger Rogers, who famously said that she had to do everything Fred Astaire did – except backwards and in heels.
Fortunately, some organizations have realized the added difficulties women entrepreneurs can face in finding funding and have set up grants and investment opportunities specifically for female business owners. There are also several traditional funding opportunities you can access.
This guide can help you navigate the different types of programs that want to give you money to help you grow your business.
How Business Financing Works
When it comes to business financing, there are several options. You can choose from traditional term loans or lines of credit from big banks, online lenders, and credit unions, as well as other types of financing like crowd-funding and invoice factoring.
When choosing an option, consider what you’ll need to qualify for each type of funding, how much you can borrow, and the differences between these forms of financing.
How to Qualify for Small Business Financing
The first thing that you need to know about business financing is how to qualify for it. It’s a little different than the process you would go through to qualify for a loan you would take out for yourself.
How Credit Score Factors In
When your company is just starting out, you’ll likely have to personally co-sign any loans that you take out for your business. In that case, the bank will look at your personal credit score and your income to determine how much you’re able to borrow and the interest rate they’ll charge you.
As your business grows and you establish a business credit score, you might be able to borrow more and at better rates. If your business credit score is high enough and you have a steady stream of income, you also won’t have to personally co-sign.
How to Increase Your Credit Score
So how do you increase your business credit score in order to qualify? To do so, you should start building your business credit as soon as you start your business. You can do this by taking out a loan or getting a credit card right away and making all your payments on time. Another way to build your business credit is to set up trade lines with your suppliers. These suppliers often report to business credit bureaus, and that helps you build a track record of borrowing and repaying money.
Another thing you might need to qualify is a track record of success. Unfortunately, some lenders won’t lend to a new business since there is a greater risk the business will fail. Those that are willing to lend you money might only do so at high rates.
Is It More Difficult to Qualify for Small Business Loans for Women?
Since the decision about whether or not to lend to a borrower is about credit, income, and company revenue, in theory it shouldn’t matter if you’re a man or a woman. But it doesn't necessarily work out that way in practice. In fact, women often find it more difficult to find funding and are less likely to seek out small business loans because they don’t think they’ll get them, according to a survey by Pepperdine University's Graziadio School of Business and Management and Dun & Bradstreet Corp.
This might be partly because women tend to make less than men, so the income that you use to qualify is statistically likely to be lower than the income a man would have. For that reason, you might not be able to borrow money or you might have to borrow less at a higher rate. However, some studies have shown that there is a lending bias when it comes to women, so it’s especially important to research your options.
Different Types of Funding Available for Women
Loans from Banks
A traditional business loan from a bank is amortized over a term length, which means that you will owe the same amount of money each month, which could help you with business planning. You can often choose between a number of different term lengths and variable or fixed interest rates.
It allows you to get money all at once for a big expense. Many bank loans don’t have pre-payment or origination fees, which saves you money.
Loans from banks can be difficult to qualify for because they tend to have stricter funding requirements. That means you might need to have more in revenue or to have been in business for a certain period of time. You might also have to borrow a minimum amount of money that can be higher than you need if you’re a small business. It can also take a while to get bank loans approved since there are more protocols and paperwork to fill out.
The Bottom Line
Bank loans can offer lower interest rates than some online lenders and higher interest rates than others. It depends on the type that you’re getting. Make sure to read the fine print to determine whether a traditional bank loan is right for you.
Loans from Credit Unions
A credit union loan is similar to one from a bank in that you borrow money for a specific period of time and pay back your money each month in installments. You can often choose from a number of different term lengths and from variable or fixed interest rates just like you would with a bank. The difference is that you need to be a member of a credit union in order to borrow from one. Depending on the credit union, you might need to live in a specific area or practice a particular profession.
It can sometimes be easier to get approved for a business loan from a credit union. Credit unions can also have lower interest rates than other lenders since they aren’t in business to make a profit but are non-profits that are supposed to serve their members. You also might be able to borrow less than you would at a traditional bank since their minimums could be lower since they serve smaller companies.
Because you have to be a member of the credit union in order to borrow from it, not all people can qualify for a credit union loan. It also might take longer to get your loan and you might not save as much as you were hoping on your interest rate.
The Bottom Line
It makes sense to look into credit unions for your financing, but make sure you qualify for membership before you apply. Shop around to ensure you’re getting a good deal.
There are all sorts of online loans for women that are now available – including crowdfunding, traditional loans, and even some sponsored by the Small Business Administration. These small business loans for women are aimed at a broader number of business owners than those that you would find from banks and other traditional lenders.
Online loans have quick applications, and you can often get your cash much faster than through a traditional lender. They also tend to target more business owners with options for those with average or even bad credit, those whose businesses are still relatively new, and those who don’t need to borrow a lot of money. Many such financing options don’t have any associated fees.
The interest rates vary from lower than traditional lenders to much higher, so shop around to get a good deal. There are also many with the same restrictions to qualify that you would find at a bank.
The Bottom Line
Online loans for women are extremely varied and can be a good option. The one downside is that there are now so many online business lenders that it can be hard to know which one to choose to get the best deal. If you’re going to use an online lender, do your research or use a marketplace to help you find the best match.
Business Lines of Credit
A line of credit is kind of like a credit card, in that you can take money out of it and then pay it back and borrow against it again. It’s particularly useful if you don’t need to borrow a chunk of money all at once or if you have long-term cash flow issues for which you often need an injection of funds.
Because you only use what you need at any particular time, you won’t pay interest on money that you’re not using. While similar to a credit card, the interest rates on lines of credit tend to be much lower. Your monthly payments are also likely to be more affordable since you have more flexibility in how you repay them.
The interest rates on lines of credit are more likely to be variable. That could mean that your rates could go up.
The Bottom Line
A business line of credit is a good thing to have in place in case you have a financial emergency or if you need to deal with cash flow issues.
Do you wish your customers would pay you more quickly because you need the money now? Invoice factoring gives you an advance on the money that is owed to you.
You can often get money very quickly, and it’s easy to qualify for even if you have bad credit.
They often charge you 3 percent to 5 percent for borrowing money for 30 to 60 days, which ends up being a very high APR. Depending on your circumstances, it might be cheaper to use a credit card or a line of credit since the interest charge would be lower.
The Bottom Line
Invoice factoring could be a good idea if you desperately need money and all your other sources of credit are maxed out. But it can be a costly way to borrow money.
Grants for Women
Who doesn’t love free money? Here are some grants that you should check out.
1. Eileen Fisher Women-Owned Business Grant Program
Eileen Fisher doesn’t just design clothing for women – she supports other female entrepreneurs. She funds small businesses that are 51% owned by women. She focuses on companies that are socially conscious, are innovative, and are focused on finding sustainable solutions. The grants start at $10,000 and you have to be in operation for at least three years and have revenue under $1 million.
InnovateHer is a program that is sponsored by the Small Business Administration. It provides grants in an annual competition that searches for products or services that will help the lives of women and families. Entrants are selected based on their potential to commercialize their product or service, the impact the product will have on women and families, and whether it fills a need in the marketplace. They provide $40,000 to the first-place winner, $20,000 to the second-place winner, and $10,000 to the third-place winner.
3. Amber Grant
Launched in 1998 by WomensNet.net, the Amber Grant was created in honor of a woman who wasn’t able to fulfill her entrepreneurial goals before she tragically died. The organization gives out $1,000 per month to a female entrepreneur. That qualifies the entrepreneurs for the $10,000 Amber Grant at the end of the year.
4. FedEx Small Business Grant
While this grant isn’t just for women entrepreneurs, it’s still one to keep in mind when you’re looking for funding. FedEx offers grants for $25,000 to help you build and grow your business. They provide up to 10 grants a year and require that you make a video in order to enter.
5. Zions Bank Smart Women Grants
Zions Bank provides a $3,000 grant to a woman in business. It aims to support women whose businesses promote empowerment or serves the low-income populations of Utah and Idaho.
Investment Funds Specifically for Women
Sometimes you just need that angel investor to believe in your business or an accelerator that will help your company go from zero to 60. Here are some places to get the help you need.
1. Golden Seeds
If you’re looking for an angel investment firm that focuses on women, consider Golden Seeds, one of the largest and most active early-stage investment firms for women. They focus on B2B and B2C firms in tech, health care, consumer products, and service industries. They look for companies that have a scalable business model and at least one woman in the C-suite.
2. Belle Capital
This early-state angel investment fund focuses on companies in underserved markets. Belle Capital requires that you have at least one female founder in order to qualify and/or that you’re willing to recruit top female talent to your C-suite. They fund digital, mobile, internet, life sciences, medical devices, health IT, CleanTech, and other sectors.
3. Female Founders Fund
As an early-stage investment fund, Female Founders Fund aims to help companies founded by women. The companies must be based on innovative solutions that will better serve customers. The organization focuses on technology that connects buyers and sellers, e-commerce, web-enabled services, and disruptive communities.
4. Women’s Venture Capital Fund II
The Women’s VC Fund II looks to help boost women in business, making investments in early-stage, revenue-generating companies that have the potential for significant growth. It requires that companies are inclusive of women. It focuses on funding companies based on the West Coast that are working on enterprise SaaS, educational technology, and consumer internet solutions.
5. Women’s Startup Lab
If you’re looking for an accelerator to help you succeed, the Women’s Startup Lab can connect you to a group of mentors who are looking to help female-led businesses. The lab boasts a stellar track record with 90 alumnae and $50 million raised for their companies. In return for their assistance, they ask for 3 percent in equity to pay it forward.