By JeFreda R Brown, CEO, Goshen Business Group LLC, WIPP National Partner
As a woman who owns a business and has clients that are women owned businesses, I have personal experience with the issues that we face in accessing capital. Several of my female clients have had this fear of seeking capital for their business because of the strict requirements by banks and other financial institutions. There are so many other companies coming to the forefront to offer capital to businesses. However, some of their requirements may not be the best for business owners. The interest rates and repayment options may not be the most favorable for businesses.
In a report prepared for the National Women’s Business Council (NWBC), it was stated that women owned business owners raise small amounts of capital to fund their companies and therefore are more reliant on personal sources of financing. It also stated that because of this, it diminishes their prospects of growing their companies. This is because we know that it takes money to make money. The NWBC also reported that there is a gender gap in equity financing. Men owned companies have received .4% of venture capital funding whereas women owned companies have only received .1% of venture capital funding. The NWBC also reported that only 5.5% of women owned companies use loans from banks or other financial institutions in comparison to 11.4% of men owned companies.
We can clearly see that women owned companies are the fastest growing segment of all businesses. So why is there such a problem with these women obtaining capital for their businesses? What needs to be done to reduce some of the restrictions that exist and cause barriers for women owned businesses? It’s time to reduce this gap for women entrepreneurs.
It is not discussed much as I can see, but from personal experience in dealing with women entrepreneurs directly, past financial hardships are big barrier that causes some women to fear even trying to obtain funding. Things like personal bankruptcy makes it basically impossible to obtain capital for a business. Many women have gone through divorce, loss of job, medical issues, and more, and these life changes have caused financial hardship. Some women have had to file bankruptcy or have had credit issues from these financial hardships. As these women have worked hard to turn things around, something like a bankruptcy automatically denies them for financing. In my discussions with women entrepreneurs that have experienced these things, it would be very encouraging to have programs in place that will help these women obtain funding and help them rebuild their credit at the same time. The programs would provide some type of micro loans that also include financial literacy education and steps that the borrowers would have to take to progress in the program. With mortgage loans, some lenders require borrowers to take homebuyer education courses before being approved for a mortgage loan. Something similar to this would be great for women entrepreneurs who have had some credit challenges.
Another barrier for women entrepreneurs to obtain capital has been the restrictions placed on home based businesses. It’s quite obvious that if these women could obtain the capital they need to efficiently operate their companies, they would more than likely have brick and mortar offices for their businesses. A home based business basically has next to none overhead expenses. It’s the easiest way for someone to begin a business. However, being home based shouldn’t be a punishment and be a barrier to obtain funding. Data exists to show that more women entrepreneurs have home based businesses than men.
Another issue that seems to be a barrier for women entrepreneurs in obtaining capital is the industry the business is in. Studies have shown that businesses in high tech industries tend to obtain more capital. There are specialized types of funding that exist for technology and innovative products and services. There seems to be restrictions on service based companies that have varying revenues each month. These restrictions need to be removed. Supply and demand does dictate how consumers will purchase goods and services, however; there should be no restrictions on funding based on the type of industry a business is in.
We know that small businesses are the backbone of America. Many of the large companies that exist today started out as a small business. The federal Government needs to address the issues that women entrepreneurs face in obtaining capital more. It seems only logical that with women owned businesses being the fasted growing segment that there should be more support for us in obtaining capital. The success of our businesses is very crucial for the American economy. When a woman owned business is able to grow, it can put dollars into the economy and stimulate the economy. It can also provide jobs and reduce the unemployment rate.
We implore the presidential candidates to make this issue a major part of their platforms. We implore members of Congress to make this issue a major part of discussions and plans going forward. There needs to be more education available to women who want to start a business. This education needs to be strategic with the focus on financial and business compliance. Right now, there is not enough of this. Companies like mine provide this type of consulting. I believe the federal Government should also partner with companies like mine and other subject matter experts in developing solutions to this issue in obtaining capital. Talking to those of us who are out here in the struggle is the only way to understand the problems that exist and develop suitable solutions for all women owned entrepreneurs. Another way the Government can get involved is to work with larger women owned businesses that have been successful to start a mentor protégé program to help smaller women owned businesses develop. The program has been successful for federal contracting. I believe it would be a huge help for smaller women owned businesses and at the same time help the large businesses in having additional capabilities to provide to their customers and clients. It’s time to be more assertive in reducing and eventually removing the gap for women entrepreneurs in obtaining capital.
Share your view on Access to Capital and its impact on your business by taking quick poll.