Against all odds, women have left their mark on the small business ecosystem. More than 13 billion, or about 40% of all small businesses in the United States, are owned by women entrepreneurs.
In total, these companies employ more than 9 million workers and inject more than $1.7 trillion into the economy each year. It is enormous!
However, things have not been easy for businesswomen. For centuries, it has been difficult for women entrepreneurs to get small business loans. Most traditional lenders look down on them and flatly refuse to fund their business ideas.
Fortunately, many alternative lenders have stepped in to fill the loan gap, making it easier to access a small business loan for a woman.
There are even government programs, foundations, corporations, and microlenders, aimed at helping women access grants and small business loans.
What is a business loan for a woman?
Small Business Loans for Women are financing options aimed at helping female entrepreneurs access funds to start and grow their businesses.
Lenders in this category aim to bridge the historic lending gap for years and facilitate women’s access to small business finance.
Different financing options for women
There are different financing options that women can consider to start and grow their business. They understand:
Banks and credit unions
Banks and credit unions are the best sources of small business loans for women with good to excellent credit, substantial income, and a long business history.
Loan terms and rates may vary from lender to lender, but you can be sure to access financing at the lowest interest rates and longer repayment terms than you can. find elsewhere.
However, banks have strict requirements and may require personal guarantees or collateral, which is a barrier for women seeking financing through these traditional lenders.
On average, banks only approve 13% of loan applications and the underwriting process can take weeks or even months. Gender bias is also a scourge in banks: men are more likely to be approved than women.
These are government-backed loans offered by Small Business Administrations (SBAs) to small business owners, including women. The SBA guarantees up to 80% of the loan amount with approved lenders, and you can get financing for up to $5 million.
Like bank loans, SBA loans have low interest rates of less than 9% and have long repayment periods. You can also take advantage of SBA programs such as the Women’s Business Center (WBC), designed to help women entrepreneurs start and grow their businesses.
The downside is that SBA loans come with very strict requirements, including a high minimum credit score, and you may not qualify unless your business is already established and profitable.
You’ll also prepare for an extended application and funding process of up to 60 days.
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If you have a good personal credit rating, you can use personal loans to raise start-up capital or inject cash into your business. The good thing is that personal loans do not require collateral and have less stringent requirements than business loans from traditional lenders.
However, personal loans have lower limits than business loans, and you cannot raise enough money with this method of financing. Again, you end up mixing up your personal finances and your business income, which complicates your tax filing and bookkeeping.
Grants for Women
Various companies and foundations offer grants to help creative women entrepreneurs raise capital for their businesses. Although it is difficult to get grants, you should never hesitate to try.
If you qualify and win the challenge, you walk away with free money that you can use to grow your business without having to worry about monthly repayments.
Top grants you can look into include the InnovateHER Challenge, Girlboss Foundation Grant, Tory Burch Foundation Grant, Amber Grant, and Eileen Fisher Grant for Women-Owned Businesses, among others.
Arguably, online lenders are the best alternative sources of small business loans for women. Unlike traditional lenders, they use advanced financial technology to process business loans without systemic racism or gender bias issues.
Again, online lenders beat other lenders with a simple application process because you can apply from anywhere, anytime. They also have transparent loan terms and include business loan calculators on their websites so you can determine your loan costs before making the final application.
Once you’ve been pre-approved and agreed to the terms of the loan, you can get funding within a day or two. Additionally, fintech lenders have lenient lending requirements and are more likely to accommodate small business owners with low to fair credit scores.
The downside is that their loans carry higher interest rates than banks and have shorter repayment terms of 24 to 60 months.
Microfinance offers small business loans for women and is ideal for women entrepreneurs looking for smaller loans.
Microloans are primarily for informally run SMEs generating less than $500,000 in annual sales and are easier to obtain than traditional business loans.
Even online lenders offer these types of loans up to $75,000.
Why a woman should consider accessing alternative financing options
There are several reasons why a woman should consider alternative lenders rather than traditional ones. They understand:
No gender bias
Gender bias is a significant barrier for women seeking financing from traditional lenders. In comparison, women receive less than 16% of business loans. Additionally, a female entrepreneur is 15-20% less likely to be approved for a bank loan than a male counterpart.
Alternative lenders, like online lenders, use technology to process business loans without these issues. They won’t ask you for your gender when you make requests.
To consider your loan application, traditional lenders need good to excellent credit, a long business history and excellent business finances.
However, alternative lenders are the exact opposite. They are willing to use alternative data to assess the creditworthiness of borrowers. Thus, they are willing to work with borrowers with poor, fair or no credit history.
Online lenders offer easy application, quick pre-approval, and faster funding. Once you’ve agreed to the terms of the loan and made the final application, you can get funding in a day or two.
With traditional lenders, you have to prepare for a paper-laden, bureaucratic application process and wait weeks or even months to receive funds.
How to apply for a business loan for a woman
Here is a step-by-step guide on how to quickly apply for a small business loan for women:
- Decide how much money you need to borrow and check your credit score
- Comparison of lenders based on their credit score and other requirements
- Choose the best lender and complete an online application form to get pre-approved
- Accept the loan terms and share the personal and professional documents required to make the final application
- Get approved and sign the contract
- Expect to receive your money within 1-2 business days
Visit the link in the intro to learn more about the different loans for women and apply in a few steps to get funding.