Small Business Financing News: WSJ Reports that Access to Capital Prevents Many Women-Run Businesses from Fulfilling Their Potential

I recently read an interesting article in the Wall Street Journal: Why Are Women-Owned Firms Smaller Than Men-Owned Ones?

In the article, Sharon G. Hadary explores the phenomenal growth of women-owned businesses, reporting that women are consistently launching enterprises at twice the rate of men over the past three decades, and their growth rates of employment and revenue have outpaced the economy.

However, despite all this progress, on average, women-owned businesses are still small compared with businesses owned by men - with the average revenues of majority women-owned businesses were still only 27% of the average of majority men-owned businesses. More than a quarter of a million women in the U.S. own and lead businesses with annual revenue topping $1 million—and many of these businesses are multimillion-dollar enterprises.

So what's holding back so many women business owners?

The article goes on to address various factors that are preventing so many women entrepreneurs from fulfilling their potential. One of the problems is access to working and growth capital.

I believe this is largely due to a knowledge/experience vacuum (which is a universal problem not limited to women) that can be further inhibited when you factor in the predominately white demographic of lenders. Seeking business credit can be intimidating for anyone, but especially for women since banking is still largely the domain of mature white guys with old school networks and marketing, not to mention conservative lending views (more so now after the credit crisis). The demographic of bankers - both investment, commercial, and alternative financing - is still dominated by white males with some inroads being made by men of color. Very few women and virtually no statistically relevant numbers of women of color are to be seen in this space.

That being the case we do not mean to imply an “unfriendly” or “unsympathetic” lending environment exists for women. My view is the banking community is pretty much gender and race neutral as to services and borrowing. The service providers themselves may not be diversified but the deals are viewed on their own economic merit. However, that still doesn't mean the demographic make-up of the bankers isn't an intimidation factor for borrowers who see little diversity in the arena.

Another issue may be insecurity regarding financial and market knowledge. Our experience is that most small business and even lower middle market business managers, CFOs, and financial advisors have little knowledge of financial products and markets available for borrowing. Small business commercial banking as well as alternative lending are vastly fragmented industries, and it really takes a specialist to understand the market and appropriate service providers in that sector. So it is not surprising that smaller businesses have difficulty finding the optimal solution to their financing needs.

Additionally, working against this group of small businesses is having little knowledge of the criteria for borrowing and what types of credit are available to them, not to mention what institutions make the kind of loans they need and are qualified for. Severe fragmentation in the small business lending market exponentially exacerbates this problem. The larger companies, on the other hand, have more experience and capable CFOs, a smaller pool of lenders with standardized solutions, and a better understanding of the debt market in their segment. From our perspective, this is a more universal problem and not limited to women rather than men. However, it may be more difficult for women to network and "ask the questions" of a white male demographic of the lenders, than it would be if service providers were more diversified.

Help for Entrepreneurs Looking to Reach Their Potential: Get in the Game!

The solution - for both men and women looking to accelerate their business growth - is to start asking questions and forming relationships before financing is desperately needed.

There is a conventional process for raising money for a small business. Those steps are pretty well known to entrepreneurs who have been through the process. Generally, the business owner uses their own capital from savings, credit cards, or personal borrowing. Next, perhaps they can get friends and family to invest or lend money. And here is where I think the process breaks down for many. After they have started and raised capital through the aforementioned means, the entrepreneurs then thinks they can go to the “bank” which is defined as the regional or national commercial bank. Usually this credit request is a little early due to the conservative nature of commercial banks and the request is denied.

The best next step before speaking to a commercial bank may be to discuss your needs with an alternative lender or advisor familiar with this market. The alternative lending sector is created to provide credit to businesses earlier and in higher quantities than commercial banks.

Alternative lenders are accustomed and equipped to more closely monitor a new business than a commercial bank so that are more comfortable making loans. Alternative small business lenders also realize they are often an interim step for a business before they enter the commercial bank and are not constrained by regulation and liability issues so they can frankly discuss the loan process with a business woman and what they have to do to qualify for a bank loan.

For an interesting case study on a woman-run businesses, see how Colleen Gray, CEO of Consensus, increased her company's available capital to support continued domestic and international growth. 

You can also read more about Alternative Financing Options for Securing Small Business Loans for Working and Growth Capital.

Since 1998, US Capital Partners has been providing prompt, innovative, and reliable financing solutions including lending, corporate financing, and debt re-structuring to businesses across the United States and abroadIf you are looking for financial support, visit US Capital Partners, Inc. at or call (415) 882-7160.