Women entrepreneurs are driving the economy: Nearly half of the American businesses started in 2021 were started by women, according to the World Economic Forum. This is up significantly from 28 percent in 2019. Partly responsible for this uptick may be the pandemic and its influence on the workforce.
While women are successfully carving out more opportunities in the entrepreneurial space, they continue to face steeper challenges than their male counterparts. Chief among these hurdles is securing funding for establishment and expansion.
Here’s a look at some of the systemic hurdles women face and resources that can help overcome obstacles.
Challenges faced by female entrepreneurs
Female entrepreneurs face unique professional challenges, many of which were harder to overcome before the Women’s Business Ownership Act was passed in 1988. This legislation eliminated many funding barriers that kept women from applying for their own business loans; it also cleared the way for the expansion of Women’s Business Centers in the U.S. (in 1989, there were only four locations in the country; now, there are well over 100).
Though the tools for funding and success have become more accessible in recent decades, many obstacles remain. According to the U.S. Chamber of Commerce, capital, confidence, and market saturation remain three of the most significant barriers to women business owners. Here’s a look at statistics that show the upward battle women face on a regular basis.
Lack of financial support
- Women entrepreneurs (66%) report difficulty in securing the funding they need.
- Women business owners (44%) operate in low-growth industries, which can make fundraising challenging.
- In 2021, women entrepreneurs (48%) reported cutting into their own pay to retain employees.
- In 2022, female founders received only 2% of venture capital received by venture-backed startups.
Gender inequality
- Women business owners (59%) believe they have to work harder for the same level of success as men
- On a global scale, female-owned businesses were 5.9% more likely to have closed their businesses than male-owned businesses during the pandemic.
- Women are more likely than men to receive shorter term loans and higher interest rates than men.
Racial disparities
- Black female entrepreneurs earn an average of $24,000 compared to $142,900 among all female-owned businesses.
- Women of color were denied business-related relief funds 2 to 3 more times than white or male business owners.
- Since 2020, women of color (13%) have received less business-related financial assistance from banks and institutions than men.
Funding for female entrepreneurs
For many female entrepreneurs, securing financing is the first hurdle to overcome. Here’s a look at the various funding options available to women-business owners.
Grants
Business grants for women are funds that don’t have to be repaid, and they’re often issued by a government entity, corporation, nonprofit organization, foundation or trust.
The federal government does not offer grants for starting or growing a business. But if you’ve started a noncommercial organization (such as a nonprofit) in medicine, technology development, or related fields, you could get some funding through specific channels.
Some business grants are available through state or local programs. But these grants usually require you to match the funds or combine the grant with other forms of financing, such as a loan. Here are a few resources:
- Grants.gov: Various government agencies offer grants on the federal level. Register to apply through Grants.gov and to learn more about your legal eligibility for each funding opportunity.
- Small Business Investment Company (SBIC) program: The U.S. Small Business Administration (SBA) partners with private investment funds licensed as small business investment companies to provide growth capital to small businesses.
- Small Business Innovation Research (SBIR) program: This program encourages small businesses to conduct federal research/research and development (R/R&D) projects in exchange for grants or various work contracts.
- Women’s Business Centers: Women’s business centers can help women entrepreneurs with business development and access to capital. Some lend money directly and others help you find grants.
There are also state and local-level grants you could leverage. To see what’s available, check out your state’s small business office. The U.S. Economic Development Resources and Small Business Development Centers can also provide a wealth of information.
Angel investor websites are another approach you can take to secure private investment. An industry association of angel groups, called the Angel Capital Association (ACA), estimates that there are more than 14,000 angel investors nationwide.
Federal contracts
The government’s goal is to award 5 percent of all federal contract dollars annually to women-owned businesses. In order to help level the playing field, competition for certain contracts is limited to businesses participating in the women-owned small business (WOSB) and economically disadvantaged women-owned small businesses (EDWOSB) programs. In order to participate, businesses must meet certain criteria and maintain WOSB certification through the SBA.
Business loans
Business loans provide funding to small businesses and traditionally come from banks and credit unions. These types of loans can come with strict loan requirements, such as revenue requirements and a certain number of years in business.
Business loans must be repaid within a certain loan term along with interest. Depending on your creditworthiness, interest rates on a business loan can soar upwards and well beyond 30 percent, especially if you’re working with a non-traditional lender. To estimate what your monthly payment may look like, use our business loan calculator.
SBA loans are backed by the SBA, but not given directly to businesses. Since these loans are partially guaranteed by the SBA, they tend to have more favorable terms than other traditional loans, including low interest rates and long repayment terms.
Alternative lenders
Alternative lenders for small businesses are also worth exploring, especially if traditional banking is not in the cards for your business loan. These funding sources may include:
- Online and direct private lenders. Online lenders allow you to apply for a loan on a website instead of visiting a bank, get a fast approval decision — usually within minutes — and deposit the money directly into your bank account.
- Crowdfunding. Instead of taking out a loan, crowdfunding allows small business owners to raise capital through a fundraising campaign.
- Peer-to-peer lending. For greater accessibility, peer-to-peer (P2P) lending platforms connect entrepreneurs directly with investors. You may even be able to qualify for these loans with fair credit.
- Microlenders. Even if you have bad credit, you may still be able to qualify for a microloan. This type of business loan usually has a maximum amount of $50,000 and may have more favorable interest rates and loan terms compared to traditional business loans for bad credit.
Bankrate insight
Types of crowdfunding include donation-based, which requires no repayment of funds. There’s also equity crowdfunding, which gives equity ownership to investors. A few notable platforms for crowdfunding include:
Resources to help overcome obstacles
As more resources become available to female entrepreneurs, there are opportunities for women business owners to strengthen and grow their businesses.
Women-owned businesses: Get certified
Various women-owned business certifications are available for women-owned businesses, both through the government and in the private sector. To certify as a women-owned business, you’ll want to follow an established certification program to optimize your opportunities.
Certified businesses have a chance to compete for funding that is earmarked for women-owned businesses specifically (certification ensures that your business and its ownership meet certain qualifications). In addition to the WOSB and EDWOSB certifications mentioned above, entrepreneurs may also look into the Women Business Enterprise (WBE) certification.
While certification does require paperwork and associated fees, it can vet your business to obtain future funding and opportunities.
Women-owned businesses: Find business development resources
There are several programs and organizations that offer entrepreneurial mentorship programs to help build networking skills, business development, and women-owned certifications.
A few notable mentorship programs for women entrepreneurs include the Women’s Business Enterprise National Council (WBENC), a private third party that certifies women-owned businesses on behalf of U.S. corporations. Also, look for WBENC certification through city, county or state programs. A few more options include:
The SBA offers access to mentorship for women business owners through women’s business centers, SCORE and small business development centers (SBDC).
Look for mentorship programs on a local level. An example is Valley Venture Mentors, which was founded by Rick Feldman, lecturer in entrepreneurship, organizations, and society at Mount Holyoke College, a women’s liberal arts college. It builds, supports, and maintains a community to launch entrepreneurs and nurture startups.
Female entrepreneurs of color can take advantage of the Minority Business Enterprise (MBE) certification with the National Minority Supplier Development Council (NMSDC) or a local MBE program. The requirements are that the mentorship program be at least 51 percent owned, operated, capitalized and controlled by a member(s) of a minority group who is the top executive officer. In addition, Minority Business Development Agency (MBDA) Business Centers work to promote the growth of minority-owned businesses and can help you find a mentor.
The bottom line
Female entrepreneurs face various challenges in growing their businesses, but these hurdles aren’t insurmountable. With the right skills, mentors and resources, women can see their business ventures grow and thrive.
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