The challenges faced by women in the professional sphere are numerous. Not least of these are the wage gap, the glass ceiling, and the casual sexism that persists in many workplaces. So it's no wonder that an increasing number of women are opting to go into business for themselves. While the challenges don't stop because she's working for herself, a female entrepreneur does have certain incentives open to her that would not be available to her male counterparts, including programs that support women-owned businesses, and loan and grant money that's made available to them.
Who Qualifies for Loans Targeted at Women-Owned Businesses?
Despite a seemingly obvious answer, the qualifications are a bit more stringent than you might think. The criteria used by several independent national and regional nonprofit accreditation agencies like the Women's Business Enterprise National Council (WBENC) are in line with the government's (and most banks') criteria for determining whether a business is a Women-Owned Business.
While the certification isn't mandatory -- and can be time-consuming -- the general consensus is that it can be helpful, especially when it comes to bidding on government contracts, or reaping the rewards of programs that incentivize business ownership by women. In the broadest possible terms, the main certification criteria are as follows:
- The owner must be a citizen of the United States
- The business should have been open business for six months or longer
- A woman must own 51 percent or more of the business. She must also be involved in the day-to-day running of, and long-term planning for, the business, and must hold the business's highest position.
Beyond establishing what qualifies as a woman-owned business, it's also worth noting that not all lenders will lend to all types of businesses. The industry to which a business belongs, and that industry's risk category, play a major part in whether or not a business will be approved. The SBA specifically calls out "pyramid schemes" and businesses based on an MLM (Multi-Level Marketing) model. That leaves Amway, Herbalife, Origami Owl, Scentsy, Mary Kay, Shaklee, and dozens of similar businesses out of contention.
How To Apply for a Small Business Loan
The loan application process has variations in length and the type of information required from one lender to another, but there are some points in common among them. For bank loans, a business must show at least two years in business (often under the current ownership). Tax ID, tax returns, information on the use of the loan, type of business, and number of employees are all required.
Since risk and ability to pay are also a major part of the equation, expect a credit check, and be able to furnish a business plan, P&L, sales and profit figures, an accounting of existing financial obligations, and your debt-to-asset ratio. In addition, if you're pursuing a loan specifically tailored to a women-owned business, you will need to provide further documentation. Needless to say, everything should be as complete and accurate as possible; your loan approval might take longer or be rejected otherwise.
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Alternative Financing for Woman-Owned Businesses
Bad credit happens to good people. Whether it's because of a personal hardship or a setback in business, a business owner's credit can take some hard knocks, or a pretty serious hit. That makes it much more difficult to obtain loans, but alternatives do exist; to find out more about the potential and the pitfalls, read Business Loans for Bad Credit.
Grants for Small Businesses
There is a popular -- and mistaken -- perception that grants are free money. However, grants are more difficult to get, having a much longer application process and significant restrictions on their use. Your business will be held accountable for the use of the funds, and may be penalized for misuse of funds.
However, there are several major grants (and scores of smaller ones) available to women-owned businesses. Grant-making bodies range from nonprofit foundations (an excellent source for finding foundation money is the Minority Business Development Agency (MBDA)) to state and local agencies and for-profit businesses as diverse as Google, FedEx and Huggies.
Major Lenders to Woman-Owned Businesses
The SBA: While not a loan provider, the Small Business Administration is a loan guarantor that works with several major lenders. Their advantage is that they have a better understanding of the needs and challenges faced by startups. Read more about them here.
Credit Unions: As banks tighten their credit requirements for loans and turn down up to 78% of applicants (by some estimates), credit unions have emerged as an alternative offering many of the same perks as a bank but with somewhat higher approval rates.
Banks: For borrowers with very good credit, bank loans are an excellent option given the lower interest rates and better repayment terms offered for most types of financial assistance. Several banks have programs that are specifically intended for women-owned businesses, including:
- Bank of America
- Bank of the West
- J.P. Morgan Chase
- Regions Bank
- SunTrust Bank
- TD Bank
- U.S. Bank National Association
- Wells Fargo
For much of their lives, women are encouraged to "take ownership" of their successes, their failures, and of their hopes and dreams, so why not their own businesses? Women-owned businesses account for a significant part of the economic growth in the United States, and the right financing options can help grow yours right along with them. The challenges are numerous, but thankfully, the rewards are as well.