The Fundamentals Of Small Business Loans For Women
Business Loans For Women: the title of this article might have you wondering a lot of things such as “are there really actually small business loans specifically for female-led businesses?” “Don't female-owned small businesses get the same type of financing as Male-owned ones?” “What makes female-owned small businesses different when it comes to loans?” Lenders certainly don't discriminate when it comes to business loans, and technically there are no separate business loans for women. But female entrepreneurs do have their own set of challenges when starting up a business, and sometimes getting financing can be more difficult for them than it is for male entrepreneurs. Why is that?
The Barriers For Women In Business
For one, women-owned businesses are still emerging. Yes, they are growing in number and catching up to male-owned businesses, but they're not yet at the forefront. Plus, lenders may consider women in certain demographics such as divorcees, widows, or single mothers to be in a higher risk category. The good news is women have also shown themselves to be financially responsible and great planners when it comes to finances, and many financial institutions and government programs are starting to see this. If you're a woman looking to build a business from scratch or assemble a new big company joining with other business partners, there are others who've gone before you who you may be interested in learning from.
Current Female Business Owners
Nena Vaca of Pinnacle Group became quite famous for building an IT staffing firm right from the living room of her apartment. It took her some time to get financing for her business, but through savvy money management tactics, she was able to keep debt to a minimum and eventually procure it. Vaca's company today is worth hundreds of millions. Kathryn Hall of Hall Capital Partners co-founded and still serves as co-chair of the San Francisco based investment firm. She and several other female executives have broken into a sector that many other women business leaders have not touched. But the firm has seen its assets perform exceptionally, and Hall has talked about how diverse her portfolio management team is.
Options For Business Loans For Women
The other great news if you're looking for small business loans for women is that you're not just limited to standard business loans anymore. The kind of loan you get, and where you get it from makes all the difference. Most women small business owners are directed to SBA loans, asset-based loans, term loans, lines of credit, microloans, and merchant cash Advances.
SBA loans are offered by brick and mortar chain banks, smaller banks and credit unions, and online lenders. SBA loans rank highest in terms of how much you can borrow for your business and getting the lowest interest rates. But they also usually have the strictest requirements in terms of your credit score, income, time in business, and financial history. They do have a microloan option though that is a little less difficult to apply for.
An asset-based loan is a loan that is usually used to purchase business assets or borrow against them for other qualified purchases. These loans may be ideal if you already possess significant collateral including outstanding accounts receivable invoices. But they can also take time because your assets will need to be appraised.
Term loans and lines of credit can be more ideal choices as small business loans for women because they can be more flexible for use for short-term expenses. In some cases, these loans are unsecured, though they may require a personal guarantee before you're approved. A line of credit offers extra benefits in that you can borrow any amount up to a certain limit, but you only need to pay off interest on the amount you borrow.
A microloan is a smaller loan amount that may be as high as $50,000 but could be lower than $10,000. This type of loan is offered by the SBA, but many online lenders offer it in their own products as well. A microloan is usually a good choice for very early-stage women-owned small businesses who may not have the kind of high-value assets that larger loans would require, but that have enough data for their business to be evaluated and looked at prior to approval. Online microloans often have much quicker approval times as well sometimes funded in as little as two business days.
A merchant cash advance is really in effect not a business loan but instead is more like a purchase of future credit card sales. In exchange for funding, a lender will then collect a percentage of each future credit card sale until the advance is paid off. You basically don't have to make any monthly payments yourself since these advances are automatically repaid, but they do come with other terms that could hurt your cash flow, and they can have factor rates that are like the equivalent of double or even triple-digit APRs.
Other Things Women Business Owners Should Know
The kind of financing you want also determines the kind of documents and business history you'll need for approval. The larger bank loans and asset-based loans usually require at least five years of business history and all kinds of legal and financial documents, and an asset appraisal on top of that. Online loans, especially unsecured loans don't require nearly as many documents, but your credit history either as a FICO score or alternative credit will be checked.
Loans and other forms of debt financing aren't the only way to fund your business. You can look into private investors either from people you know like friends and family, women-owned business angel investors, or crowdfunding. In all of these cases, you're not taking on debt and therefore aren't usually obligated to repay investors. But you could be giving up a portion of your profits and some control over your business if multiple active investors are involved.
There are also grants offered by government organizations, and nonprofit organizations like the National Women’s Business Council and National Association of Women Business Owners can help connect female business owners to those grants. But even if you aren't eligible for a grant, there are many other helpful resources they provide on ways to get funded. You might also look at getting certified which can increase your chances of getting funded.
At the end of the day, remember that the obstacles to funding your small business aren't as high as they used to be. Look into every form of financing out there, and take some time to educate yourself on each one. You always have more options than you think.