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How are female entrepreneurs funding small business growth?
Oct 29, 2019
If you're a woman and a business owner, you've got lots of company nowadays. Female entrepreneurs now make up a third of business owners, according to the U.S. Department of Labor, and the number is rising fast.
When it comes to funding their enterprises, however, women are far behind. According to Pitchbook, companies founded by women receive just over two percent of venture capital funding, and women also garner a significantly smaller share of business loans. Not surprisingly, over half of female entrepreneurs opt to bootstrap, or self-fund, their start-ups.
Yet when women are able to get their business off the ground, they are likely to succeed: one study found that companies founded by women return more than two times as much for every dollar invested than companies owned by men.
Fortunately, as the number of female entrepreneurs has risen, so has the awareness of the funding gaps. Today, an increasing number of grants and loans are directed solely at women. If you're looking to start or expand your business, there are also other funding options, including asking family or friends for help, or taking on various forms of debt.
Here's a rundown of some of the most popular options.
Small business loans
The advantages: Business loans generally come with reasonable interest rates and are relatively easy to obtain, and loans with fixed interest rates offer steady, predictable payments.
Some of the most popular small business loans are those backed by the U.S. Small Business Administration. There are several kinds of SBA loans, including general, or 7(a) loans, CDC/504 loans, which are mostly used for hard assets or construction, and smaller microloans. You can learn more about each type of loan at sba.gov. Discuss the requirements with your lender.
The disadvantages: Depending on the type of loan you get, your lender may require you to keep your businesses' debt-to-equity ratio at a certain level, or you won't be able to obtain further financing. If you don't have a solid credit score, your loan may come with a higher interest rate.
The advantages: Grants don't need to be repaid. They've become increasingly easy to find, and many are specifically offered to women.
If you're looking for a grant, start with the database of federally sponsored grants, Grants.gov. You can also find grants aimed at women on the website of small business nonprofit Score.org.
The disadvantages: Free money sounds good to just about everyone—and that makes for lots of competition! The process of applying for grants can be time-consuming, and the approval process can be lengthy.
Traditional sources of outside funding include venture capital firms and angel investors. However, small business owners are increasingly tapping into online crowdfunding sites such as Kickstarter and iFundWomen.
The advantages: Obtaining venture capital or private equity funding can generate a large chunk of cash that allows for fast business growth. Crowdfunding sites generally raise smaller amounts, but allow you to use the power of social media to spread the word about your business.
The disadvantages: Professional investors generally expect to get an equity stake in your business, meaning you'll keep less of the profits when the business is acquired or sold. They also usually require you to adhere to a formal reporting structure. Crowdfunding sites have fees, and some come with specific requirements for participation. You also have to be willing to show your ideas to the world—and let dozens of investors see whether your business flies or fails.
Unless you have a great deal of savings, you'll likely need to take a loan or line of credit against your personal assets, such as your home equity, or accrue personal debt in the form of a personal loan or credit card.
Though many business owners need some sort of seed money, it also may be possible to grow your business organically, by re-investing profits into the business.
The advantages: You retain full control of your company, and don't have to answer to outside investors.
The disadvantages: Successful bootstrapping requires steady growth, and not having a large chunk of cash on hand may limit how quickly you can achieve your goals. Should your business not succeed as quickly as you hoped, you may wind up owing significant interest on your personal debts.
How women fund their businesses
59% of women entrepreneurs are eager for funding1
2.3% of women-founded companies receive investor funding (VC) funding2
…but investors who back female entrepreneurs see a higher payoff
For every dollar of funding, female-led startups generated 78 cents, while male-founded startups generated less than half that—just 31 cents.3
And women have other ways of getting the funds they need
Women are more successful at crowdfunding4
30% are more likely to use personal savings5
46% use credit cards6
54.4% obtain SBA microloans7