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Women's Voices Magazine - Washington Watch - October 2014

posted Oct 8, 2014, 1:10 PM by Ann Sullivan   [ updated Oct 8, 2014, 1:11 PM ]
The Mystery Behind Lending to Women
By Ann Sullivan

In her first appearance before the U.S. House of Representatives, Small Business Administration (SBA) Administrator Maria Contreras-Sweet said “there is no silver bullet when it comes to access to capital.”  This comes from a woman who ran a bank and a venture capital firm. During the hearing, Congresswoman Janice Hahn cited some bleak statistics as well – before the recession, women-owned small businesses received 40% of SBA loans; today, it is only 16%.

Administrator Contreras-Sweet responded that the SBA is undertaking a number of initiatives to increase SBA loans to women.  These include waiving fees on loans below $150,000 (which has resulted in a 35% increase in loans to WOSBs), meeting with SBA's lending partners across the country seeking commitments to make more small dollar (less than $150,000) loans to women, and increasing access to Women’s Business Centers (WBCs) and other SBA resource partners that provide the tools and skills women need to access capital and be successful.

Since the publication of the Senate Small Business Committee’s report on challenges facing women business owners, 21st Century Barriers to Women’s Entrepreneurship, the community has been doing some soul searching.  Namely, why do women lag behind their male counterparts when it comes to obtaining capital for their businesses?  The answers come in various forms: “women don’t have the confidence to go ask for money/investment,” “men lend to men not women,” “lending requirements stack the deck against lending to women owned businesses since they tend to be smaller and newer than male owned businesses.”

Senator Maria Cantwell, who chairs the Senate Small Business Committee, held a roundtable discussion in Seattle, WA that focused on changes Congress could make to resolve this inequity.  The Senator introduced a bill that makes it easier to access a loan of less than $150,000 (including microloans) because women use these loans by a greater percentage than men.  It also boosts the services of Women’s Business Centers that provide the information and connections to lenders in her bill.

The National Women’s Business Council, another voice for women nationwide, recently published a study about this topic.  Among their findings: men tend to start businesses with twice as much capital as women, women receive only 2% of total funding from outside equity compared to men, who receive 18%, and to lend credence to the statements above, women were more likely to be discouraged from applying for loans due to fear of denial. 

The study made the following recommendations:

Entrepreneurs should consider founding businesses with other people.  According to the study, many investors are reluctant to fund a single business owner because of the difficulty for one person to scale a business.  Additionally, they should also complete a cost-benefit analysis of what equity financing can do, carefully weighing the upside (financial, social, and human capital) of external equity with the downside (less control of the company’s future).

For Funders, the study recommends increasing outreach to find women entrepreneurs with investment-ready firms. Similarly, they should increase the number of women on the financing and investment side, such as angel investors, members of a venture capital pitch committee, and in other roles.

For the Entrepreneurship Ecosystem, the study recommends encouraging women to participate in STEM fields prior to entrepreneurship.  Although women are on par with men regarding educational attainment, previous research indicates that women are less likely to have degrees in STEM fields – and these fields are more likely to offer opportunities for growth-oriented entrepreneurship.  Business programs focused on women and women-led and –owned businesses should be established and strengthened, including accelerator and incubator programs, equity financing programs, and business mentorship and training programs that target women-owned firms with high-growth potential.

We are all seeking a way to bring more capital to women owned businesses so that they can become successful and create wealth for themselves and their families.  But no one has the answer – a silver bullet – to solve the problem.  It turns out, it is complex and requires action on a number of fronts both private and public.

On the private front, organizations that serve women need to do much more education on obtaining the right amount of capital required to grow their businesses.  They need to make connections with lenders and investors that want to connect with their membership. Lenders need to be much more aggressive about reaching out to women business owners with their products.  Non-traditional lending institutions, such as CDFIs, must do a better job of promoting their ability to provide small loans.  Investors should be forming alliances with women’s business organizations to create a pipeline of women who are ready and eligible for their offerings.

On the public side, SBA should press their network of lenders to pay closer attention to lending to women.  The SBA should also look for ways to encourage increased participation in their lending programs by streamlining the requirements on banks that participate.  Congress should allocate the necessary funding to Women’s Business Centers who are in a position to help: there are only 106 WBCs nationwide, which is not nearly enough to serve the fastest growing segment of businesses. 

Last, but certainly not least, women should think bigger and bolder by foregoing the notion that business debt is bad.  Insisting on a cash business will almost certainly keep the business small and result in slow growth.  That is unless you come to the business armed with lots of cash or you take over a business that is well established.  The last time I looked, not many of us fit into either category. 

To be successful, we need capital.  All stakeholders, both private and public, must work together to increase capital for women entrepreneurs. 

So what are we waiting for?  Let’s do it. 

Ann Sullivan is the President of Madison Services Group, Inc, a woman-owned government relations firm in Washington, DC.  She also serves as Women Impacting Public Policy’s chief advocate in Washington, D.C., a role she has now held for over a decade.   ContactWebsite - Facebook - WIPP