Loan Her: 5 Tips For Business Loans For Women Entrepreneurs
More women own businesses now than at any time in the past. According to the 2018 State of Women-Owned Businesses, a report from American Express, the number of women-owned businesses grew by 58 percent from 2007 to 2018.
While it is true that more women are starting businesses than ever before, there is still a significant issue when it comes to securing capital. Numbers recently reported in Fortune shows that only 2.2 percent of venture capital went to female-owned businesses in 2018.
While this may be unfair, it is the unfortunate reality in which female entrepreneurs must operate. Fortunately, there are organizations and initiatives that are making efforts to correct this disparity. Since there may be some additional hurdles between female entrepreneurs and the small business funding they need, it is important for these business owners to know their options for acquiring financing.
The following is a quick overview of some of the financing options that are available for female entrepreneurs.
Term Loans: A term loan is a common form of commercial loan. The borrower gets a fixed, lump sum amount from the bank which needs to be paid back in a specified period of time. Term loans can run from a single year contract to 25 years for repayment, and they can have fixed or floating interest rates.
Term loans are usually good for small businesses that need money to cover a major businesses expense. If they need an expensive piece of new equipment or capital to expand operations, a term loan is a good financing option.
SBA Loans: An SBA loan is one of the most beneficial types of term business loans. Guaranteed by the US Small Business Administration, these loans also set rules and requirements for lending. Securing an SBA loan can be very beneficial to a small business owner since they typically have lower interest rates than traditional term loans.
The downside to SBA loans is that they can be difficult to acquire. Since the SBA puts strict guidelines on lending, there are significant reporting requirements for small businesses applying for these loans. Furthermore, there are different types of lending programs from the SBA, so the business owner needs to evaluate their situations and apply for the right type of SBA loan.
Invoice Financing: Invoice financing is a good option for businesses that sell to other businesses. This is especially true if it is common for your customers to take a few weeks or months to pay on invoices. With invoice financing, the business is using their outstanding invoices as proof that they will have the money to pay back the loan.
Another option is invoice factoring. With invoice factoring, the loan is not based on the value of the invoices. Instead, you are selling the invoices to a third party, which allows the business to receive most of the value of the invoice without waiting for the client to pay.
Lines of Credit: A line of credit is a more flexible option for borrowing. Instead of having a set lump sum that is borrowed and then needs to be paid back on a set schedule, a line of credit is a set amount that can be borrowed and paid back as needed.
This can be valuable to small business owners because it is a form of revolving credit. As long as you do not exceed the credit limit and meet the requirements set by the lender, your business can repeatedly borrow and pay back the money on a schedule.
Grants for Female Entrepreneurs: Beyond borrowing options like term loans and lines of credit, there are grant programs that are specifically aimed at helping women who own businesses. If you can get approved for one of these grants, it could provide capital that helps to get your business off the ground or take it to the next level.
One example is the Eileen Fisher Women-Owned Business Grant. This grant awards $10,000 to 10 women each year. To qualify the business should generate less than $1,000,000 in revenue and have been in operation for at least three years.
You also have grants from the Startup Ladies Fund. Startup Ladies is an organization that provides resources and networking opportunities to female entrepreneurs. The fund provides seed grants to members who are looking to start a small business.
These are just two of the national grant programs that are working to provide female-owned businesses with the funding they need. With a bit of research, you can find even more programs that are dedicated to helping female entrepreneurs and providing them with funding. Depending on your line of business or location, there may even be additional funding opportunities that go beyond the broader national programs.
About the Author
Rae Steinbach is a graduate of Tufts University with a combined International Relations and Chinese degree. After spending time living and working abroad in China, she returned to NYC to pursue her career and continue curating quality content.