Male or female, finding financing for your small business can be daunting and time-consuming. Some research indicates women have a harder time securing small business loans than men, while other research says the gap is largest for those trying to raise investment capital.
Traditional funding from banks and credit unions is typically the most attractive in terms of both interest rates and repayment terms, but can be the hardest to get, especially for younger businesses and those looking for smaller loans. If you’re a women- or woman-owned business and can’t get your foot through the front door of the bank lobby, here are three alternative places to look for financing.
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There are many state and regional programs that provide funding to traditionally disadvantaged entrepreneurs, including women. These loans are often offered through Community Development Financial Institutions (CDFIs) and they usually come with valuable “technical assistance” — training and consulting to help the business be successful. A few examples:
This is a CDFI that serves nine Bay-area counties in California. It offers installment loans of $5000 to $50,000 with terms of three to five years, along with with free business coaching, advising and consulting for the life of the loan. Sixty percent of the loan portfolio is comprised of loans to women-owned businesses.
The mission of this Minneapolis-based organization is “to help women attain economic self-sufficiency through the creation and growth of profitable and sustainable businesses.” Through its Entrepreneurship Pathways program it offers a program that offers classes, consultation, networking and access to capital in the form of micro loans of up to $50,000 for business start-up and expansion costs. These loans are designed for clients unable to access capital from traditional lenders.
First State Community Loan Fund
This Delaware-based CDFI, “acts as the catalyst for providing in-depth, substantive, outcome-oriented business services to women entrepreneurs.” It offers loans from $20,000 to $250,000 with a focus on minority and women-owned businesses. It also operates a Women’s Business Center and has developed a variety of programs for women entrepreneurs.
How do you find these programs? Your local Women’s Business Center or Small Business Development Center can help. You can also check directories of microlenders through the Opportunity Finance Network CDFI locator.
There are four main types of crowdfunding: reward, debt, donation and equity crowdfunding. Each has its pros and cons, but all aim to make it easier for business owners with great ideas or products to reach a wide audience for funding.
The good news is that many women-owned businesses end up finding success with crowdfunding. A 2017 crowdfunding report by the National Women’s Business Council, for example, found that 47% of successful campaigns on the popular crowdfunding platform Indiegogo were run by women. It also generally confirmed previous research that found that “women in general set lower funding targets but enjoy higher success rates” than men when it comes to crowdfunding.
You aren’t likely to find online loans specifically reserved just for women-owned businesses. But at the same time, shopping online can make the process easier and open up a greater number of financing possibilities. Keep in mind that online business loan shopping sites may operate in a variety of ways:
- Lead generation sites will simply gather your information then sell it to various lenders, which may then call or email you with information or offers.
- Online lenders may offer a specific set of loan products aimed at specific types of borrowers (for example, those with significant credit card sales). Remember: just because you can’t qualify with one lender doesn’t mean you can’t quality with others.
- Online brokers may try to help get you funding with various lenders with whom they have a relationship. They may charge a significant fee for this service, so be sure to ask.
- Online marketplaces will present you with options and allow you to choose which ones seem right for your needs. Ideally, you’ll also see which loans are best matched to your qualifications. (Disclosure: Nav’s small business loan marketplace operates this way.)
One advantage of online lending often especially appreciated by time-starved female entrepreneurs, is the ability to shop for financing during non-business hours. However, some options can carry very high interest rates and costs may be confusing since business lenders aren’t required to state an Annual Percentage Rate (APR). Take advantage of free online small business loan calculators to translate costs to an APR.
Put Your Best Foot Forward
Credit requirements for the financing sources listed here vary widely. Crowdfunding platforms, for example, may not have minimum credit score requirements. CDFI’s may be more forgiving of credit problems in the past. And online lenders vary; some have require good credit, while others are more interested in the revenue the business is generating.
Regardless, it’s a good idea to understand your personal and business credit scores before you begin shopping for a loan. Strong credit scores may increase your opportunities for lower-cost funding and make it easier to qualify.
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