Every small business owner faces hurdles when first starting. Women entrepreneurs may face an even greater uphill battle. Although they own 42% of American companies, just 28% of approved small business loans go to women. This disparity can make it more difficult for women business owners to grow their companies, expand into new markets, and reach business goals.

In this article:

• Small business loans for women, from first-time business loans to growth-minded loans.
• Ways women may find financing for businesses.
• Grants, venture capital, and other types of financing for women-owned businesses.

Why Do Women Business Owners Get Less Funding?

But it may be even simpler than that. More than 30% of women business owners say gender bias has affected their financing. Whether looking for working capital or a major term loan to fuel growth, many women entrepreneurs report that lenders are simply less willing to take risks on them.

That said, women business owners still have access to a range of financing options from both traditional lenders and online lenders. They may also be eligible for federal government grants or funding programs.

Small Business Loans for Women

Despite lower approval rates than their male counterparts, there are many loan options available for women. Below, we break down some of the best business loans for small businesses.

SBA Loans

Loans backed by the U.S. Small Business Administration (SBA) typically have lower interest rates and longer repayment terms than conventional term loans. The SBA may back up to 85% of a loan amount, lowering the risk for lenders and borrowers alike.

The tradeoff, though, is that eligibility requirements are very strict. SBA loans often have high credit score requirements, time in business requirements, and annual revenue requirements. The application process is also typically rigorous and time-consuming.

Nonetheless, the SBA offers resources for women-owned businesses to get access to business training, counseling, federal contracts, and low-interest business loans. It also works with the Office of Women’s Business Ownership (OWBO) to assist business owners in their search for capital.

The SBA also offers the 8(a) Business Development program, which helps small, disadvantaged businesses compete in the marketplace, and the Women-Owned Small Business (WOSB) Federal Contract program to help women-owned businesses win government contracts. Women entrepreneurs can take advantage of these and other small business loans for women.

Term Loans

A term loan is a loan program in which a lender pays a borrower an upfront lump sum payment that they must repay, plus interest and other fees, over a pre-negotiated period. Usually, term loans have monthly payments and can be used for almost any business need, from hiring and acquiring inventory to purchasing equipment or real estate.

Both traditional financial institutions and online lenders can provide term loan programs for business financing, but like SBA loans, they can be difficult to qualify for. When the stats show that small business loans for women are particularly challenging , they usually refer to conventional term loans.

You’ll need a strong personal and business credit history to improve your chances for approval and a lower interest rate on any term loan. Term loans often require collateral and have a demanding approval process to reduce the risk to the lender that the borrower may default on the loan or fail to make payments. While they’re one of the most available small business loans for women, term loans are very difficult to get as first-time business loans and may not be available to business owners with bad credit or early-stage companies.

Microloans

Alternative lenders might be a worthwhile option for women entrepreneurs to consider. Small loans that come from individual lenders, not from a bank or a credit union, an individual can issue microloans, or they can be assembled from several lenders, each contributing a given amount until the necessary funding total is achieved.

With a microloan, the lender gets interest on the loan and repays the principal after the loan has reached its full term. Since they’re short-term and for lower loan amounts, microloans often come with higher interest rates. However, they’re usually easier to qualify for, making them decent options as a first-time business loan for all types of businesses.

Business Lines of Credit

A business line of credit is part loan and part business credit card. A borrower is approved for a maximum loan amount but only pays for the withdrawals they make rather than an interest rate on the full amount. This flexible funding allows business owners to draw credit when they need to increase cash flow or pay business expenses, and then repay the amount, plus interest and fees, to regain access to the full loan amount.

Because the borrower is only paying interest on the loan amounts, she withdraws, a business line of credit can be an advantage for business owners uncertain of the amount of funding they will require or when they might need it.

Business lines of credit are among the most accessible small business loans for women and the best business loans for small businesses due to their flexible nature. Not only that, but they can also help a female entrepreneur establish a favorable credit history. However, they often have higher interest rates  than other types of loans so it’s important not to abuse a line of credit.

Other Funding Options for Women-Owned Businesses

While small business loans for women may provide the necessary capital to grow or address business needs, they also put the business in debt. It’s worth exploring other funding options.

Personal funds/loans

By far, the most common way to fund a business is with personal funds. In fact, 75% of business owners use personal funds to start or grow their businesses. But you might not realize that you can also use personal loans to fund a business.

New business owners might find it easier to get a first-time business loan in the form of a personal loan  than a small business loan for women. Some lenders are more willing to lend to individuals with good credit histories than businesses with no established record or revenue to report.

Before you go this route, ensure that your lender doesn’t restrict using a personal loan for business needs. If there are no restrictions, it’s possible you may have a better shot at approval and still retain the flexibility of a business loan.

Crowdfunding

A small business owner might want to consider raising working capital with a little help from some friends. Crowdfunding is a way to do just that. Crowdfunding takes contributions from friends, family, and potential customers through social media and online platforms.

An effective crowdfunding campaign collects small amounts of capital from a large base of interested contributors. Rather than grant them equity stakes in the business, contributors receive rewards like early access to the product or a special gift.

Crowdfunding has many advantages, particularly the ability to raise capital without surrendering any ownership or putting your business in debt to a lender. However, it’s far less reliable than small business loans for women and most campaigns on platforms like Kickstarter or Indiegogo do not reach their fundraising goals. (The vast majority of Kickstarter campaigns only raise between 1-20% of their goal.)

In recent years, equity-based funding has become more common. In this model, business owners invite small-scale investors to purchase equity in the business, thereby raising capital in exchange for shedding a portion of ownership. This investor model gives contributors a real chance to make their money back, so although there isn’t any specific research, some business owners believe they’re more likely to raise the capital they need through equity crowdfunding.

Angel investors

A private investor willing to come through with seed money for a small business startup is known as an “angel investor.” The funding sourced from an angel investor often comes in exchange for a stake in the business. Angel investors are frequently either friends or relatives of the entrepreneur, and the funds they provide may either be a one-time investment when the company is just starting up or part of an ongoing arrangement to infuse the business with more funding down the road.

An angel investor is someone who has a lot of money to spend and risks capital to spare. But taking on an angel investor could cut into your potential annual revenue since the said investor will be due his or her own cut of the profits.

Venture capital

Venture capital is a source of equity funding that is usually generated by a company rather than an individual. Venture capital firms specialize in investing in new businesses and will take chances on new companies that they believe possess substantial potential for long-term growth and big profits.

Sometimes, the assistance a venture capital firm provides does not come in the form of money, but rather in the form of counseling and expertise. Similar to angel investors, venture capitalists have a stake of some kind in the business and, therefore, have a say in the decisions that are made within the company.

While venture capitalists are always focused primarily on the profit, many make a commitment to diversifying their portfolios by investing in women-owned or minority-owned businesses. Venture capital firms with a commitment to investing in women-owned businesses with high profit potential are a great alternative to small business loans for women. However, you’ll need a business idea with serious revenue potential.

Grants

Finally, women entrepreneurs may be eligible to receive grants from public or private organizations. Grants are essentially a free sum of money aimed to help a company grow. Unlike small business loans for women, grants don’t have to be paid back, which naturally makes them very competitive.

Grants are usually reserved for business owners committed to providing services to underserved areas or creating products that benefit the government or society in some way.

The U.S. government offers grant programs through the SBA, the National Endowment of the Arts (NEA), the State Department, and more offices. Grants.gov is a great place to search for available grants.

Many private businesses and nonprofit organizations also give out grants to organizations that share a common mission or vision with the grant’s provider. Some of the most well-known grants for women-owned businesses include Smart Women Grants, FedEx Small Business Center Grants, The Amber Grant, and Eileen Fisher Women-Owned Business Grants. Small business grants may also be available from local women’s business centers.

Grants are scarce, however. You shouldn’t count on receiving one and banking on a grant rather than applying for small business loans for women, which may be a fool’s errand.

Final thoughts

The funding environment for women entrepreneurs is not an easy one, but it’s far from impossible to get capital. Smart planning, careful research, and well-considered decisions on seeking financing can help the prepared woman entrepreneur grow their businesses.

FAQs on small business loans for women

What types of funding is available to women entrepreneurs?

Small business loans for women include options from both traditional banks and online lenders, including SBA loans, term loans, and business lines of credit. Women entrepreneurs may also apply for grants or seek funding from investors or crowdfunding.

What are some organizations that provide funding to women-owned businesses?

The SBA works with women’s organizations like the OWBO and WOSB to connect women-owned businesses with federal contract programs, financing opportunities, and other business resources. Additionally, many private and public organizations, like small business development centers and women’s business centers, offer grants aimed at supporting women-owned businesses.

What are the best business loans for small businesses?

The best loan for your business depends on your personal and business situations. SBA loans and term loans are best for established, profitable businesses that are ready to go. New business owners or business owners with bad credit will likely do better by applying for short-term loans or leveraging flexible funding solutions like a business line of credit.

What are the best first-time business loans?

New women business owners may use personal loans, short-term loans, certain SBA loan programs, or loans from family members to get their businesses off the ground. It’s typically very difficult for new businesses to get conventional term loans.

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