Best Small Business Loans For Women In 2018

Women-owned businesses (companies at least 51 percent female-owned) have grown exponentially to account for nearly four-in-ten of U.S. firms over the past two decades. As of January 2017, there are an estimated 11.6 million women-owned businesses in America that employ nearly 9 million and generate more than $1.7 trillion, according to the 2017 State of women Owned Business commissioned by American Express. Further, revenues among women-owned businesses generating more than $1 million annually grew 104% since 1997, while the number of women-owned businesses generating between $500,000 and $999,999 grew by 88 percent, also according to the American Express report. For the past four years, Biz2Credit has conducted an annual study of companies owned by women. The 2017 report found that female entrepreneurs lagged behind their male counterparts in terms of average annual revenues ($210,000 vs. $363,414). Furthermore, earnings for women-owned companies were reported at $117,064, a 61 percent increase from 2015 to 2016, while male-owned firms averaged $195,574. The difference was a $78,510 gender gap. Despite these figures, the percentage of women applying for loans increased from 27 percent in 2015 to 29 percent in 2016. Borrowers who previously refrained from borrowing money for expansion or capital improvements re-entered the credit markets. Because the economy has been relatively strong and because interest rates are still quite low, women entrepreneurs have shown a willingness to take on more risk by borrowing money to grow their businesses.

Where are women turning for funding?

Four of the best forms of small business financing for women are:

Term loans

Approvals of traditional term loans (borrowing an amount of money that is paid off with interest during a specific amount of time) are on the rise. According to the latest Biz2Credit Small Business Lending Index for December 2017, big banks are currently approving more than a quarter of funding requests that come from small companies. Meanwhile, regional and community and regional banks are granting almost half (49 percent) of the applications they receive.

SBA Loans

The Small Business Administration (SBA) has been dedicated to

advancing entrepreneurship since the Eisenhower Administration established the agency during the 1950s. Significantly, agency provides government-backing that minimizes risk to approved lending partners in order to encourage the flow of capital to small businesses.

Under the agency’s popular 7(a) loan program, the SBA guarantees between 50 percent and 85 percent of an eligible bank loan up to a maximum guaranty amount of $3,750,000. The exact percentage of the guaranty depends on a variety of factors, including the amount an entrepreneur is looking to borrow and what the uses for the funding will be. When lenders face less risk in making a loan, they are more likely to approve the funding request. SBA loans typically come at attractive rates (7 to 8 percent) and at longer terms than other types of loans so that entrepreneurs can pay the low-cost money off over an extended period time.

The down side of SBA funding is that because of government involvement, the amount of paperwork required is larger and the time it takes for the funding to be approved is longer than for other types of financing.

Business Lines of Credit

A small business line of credit is an attractive option for many women-owned businesses, as well as for companies owned by men. It’s like having a debit account available for use by a company on an “as needed” basis. Companies that qualify can open a line for a fee of $100 to $250 that is frequently waived in the first year. The funds are then used when necessary. Interest is paid only on the amount that a company has drawn out of the account. Interest rates for small business lines of credit currently vary from prime + 1.75% to prime + 9.75%.

Microloans

Female entrepreneurs who do not require a large amount of capital

can take advantage of microloans that are available from a variety of sources, including non-profit lenders, such as ACCION. Typically, the amounts of these loans are under $50,000. Microloans can be used for working capital, inventory, furniture/fixtures, computers and other equipment. They cannot be used to purchase buildings or real estate.

A microloan is a great option for a company that does not require a lot of money to get up and running. They are particularly helpful to startups and to women business owners who have not yet built a strong business credit rating. Naturally, for companies that require infusions of cash in larger amounts, other forms of financing are required. Additionally, the interest rates charged for microloans (typically 8 to 13 percent) are likely to be higher than the rates charged for an SBA loan or term loan. By repaying the micro financing quickly, a small business owner puts herself in a better position to secure a less costly form of funding the next time an infusion of cash is required.

The SBA provides assistance in securing all of the previously mentioned types of funding. Additionally, the agency has a national network of over 100 Women's Business Centers (WBCs) throughout the U.S. and its territories. These educational centers are designed to assist women who are in the process of starting and growing small businesses. WBCs aim to "level the playing field" for women entrepreneurs, who still face unique obstacles in the business world. The centers are listed by state on SBA.gov and offer advice, mentoring opportunities, training, certifications, and networking opportunities.

SBA’s Office of Women’s Business Ownership oversees the WBC network, which provides entrepreneurs (especially women who are economically or socially disadvantaged) comprehensive training and counseling on a variety of topics in several languages.

Rohit Arora, CEO of Biz2credit, is one of the country's best known experts on small business financing and financial technology (FinTech).