Finance and Lending

How to Level the Playing Field for Women-Owned Businesses: Tips to Succeed and Fuel Future Growth

November 22, 2022
The C2FO Team
women-owned businesses

The business world has long presented financing gaps for female-identifying entrepreneurs — inequities that have only been exacerbated by the pandemic.

According to Biz2Credit’s 2022 Women-Owned Business Study, women-owned businesses earned almost $200,000 less than male-owned firms, on average, in 2021. About 40% of businesses are owned by women, but these account for only about a third of loan applications. Of the applications that are approved, women-owned businesses receive loans that are 41% smaller than those acquired by male-owned businesses. 

Forbes reports that in the United States, when businesses applied for a second round of Paycheck Protection Program (PPP) loans, female business owners received $23,101 on average, compared with $36,348 for male owners. The World Economic Forum also found that at the pandemic’s height, women lost significantly more working hours than men globally. 

Statistics show additional impacts for minority-owned businesses: Between February and April 2020, the number of Black and Latinx-owned businesses dropped by 41% and 32% respectively, while white-owned businesses declined by 17%. Minorities account for about a third of women-owned businesses in the US.

Even though women face revenue gaps and disproportionately less funding access than men, women-owned businesses have a massive impact on the economy. According to data from a 2021 report by the US Small Business Administration (SBA), female entrepreneurs owned 12 million businesses in the US in 2017, produced $1.8 trillion in revenue and provided 10.1 million people with jobs.

As a female business owner, how can you level the playing field? Here are five strategies women-owned businesses are using to succeed.

1. Build a professional network that includes other women

In 2021, Vanessa Dawson launched Arber, an organic biologicals plant wellness company, after recognizing there was a market gap for environmentally friendly gardening products. Dawson’s experience with operations, funding, brand development and consumer packaged goods (CPG) drove Arber’s vision and success. However, it was networking with a variety of skilled connections — from a product formulation expert to supplier networks and investors — that enabled her business to grow and reach major retailers such as Walmart.

For women-owned businesses, networking is crucial for success. Some research suggests that entrepreneurs tend to see more business growth when they’re equipped with a large network that includes business skills such as accounting or niche industry expertise. But data shows that women often struggle to foster professional connections. According to LinkedIn, women are 28% less likely than men to build strong business networks. 

A study by the Kellogg School of Management points to a key success factor in networking for women: building a female-dominated inner circle. Connecting with people from different backgrounds and areas of expertise is valuable for anyone. However, networking with other female professionals offers support from those who share your perspective. While industry conferences and events are a good place to network, also consider women-focused entrepreneur groups and online networking events.

women-owned business networking

2. Seek mentorship opportunities

Building a strong professional network — especially one that reaches other women entrepreneurs — can lead to mentorship opportunities. This is valuable for women-owned small to mid-sized businesses, especially since most mentoring is free. In a Kabbage survey of more than 200 small businesses in the US, 92% believed that mentors directly impact their business’s growth and survival — and yet, only 22% had mentorship support when they started. Survey data from SCORE published in 2018 found that companies whose leaders have mentors are 12% more likely to stay in business after the first year compared to the national average.

Mentoring is typically a casual, evolving, long-term relationship with a business professional who can offer as-needed advice. A female mentor in your industry can offer an objective perspective from someone who has experienced similar challenges as a female entrepreneur. 

While mentoring opportunities often arise via networking, you can also find mentors through organizations such as:

3. Pursue alternative funding sources

Small to mid-sized businesses already have challenges when securing business loans and other forms of traditional financing. If you’re a woman-owned business, funding access is most likely even harder, both due to lenders’ implicit gender bias and the fact that revenue and business opportunity disparities often leave women less qualified for funding.

As pandemic-era statistics demonstrate, women-owned businesses tend to generate less revenue than male-owned businesses. There’s also a gender gap when it comes to credit scoring. Biz2Credit data shows that women business owners’ credit scores decreased from 588 to 580 on average in 2021, 14 points lower than male business owners. Additionally, some of the top industries with the highest percentages of women-owned businesses — including retail and food services — are considered high-risk by lenders. Combined, these factors can make business loans out of reach for female entrepreneurs.

Thankfully, a variety of innovative solutions are making business financing possible for women- and minority-owned businesses. For example, if you are a woman-owned business struggling to secure financing, consider these alternative funding sources:

  • Fintech solutions. Some fintech businesses evaluate your risk based on factors such as your financial activities and payment history rather than your credit score.

  • Early payment platforms. These solutions offer customers a small discount in exchange for early invoice payments. This can increase your working capital without needing to take on additional debt.

  • Digital and peer-to-peer lenders. Digital lending is easier to qualify for and faster to secure than traditional financing, but lenders often have higher interest rates.

women-owned business funding

4. Prioritize female-focused venture capitalists

The minority women-owned business Blume, which offers environmentally friendly body care products, now supplies major retailers such as Sephora. However, Blume’s founders initially struggled to appeal to investors until they found support from Backbone Angels — a collective of women-focused investors.

Investment firms such as Backbone Angels are emerging to level the playing field in venture capitalism. According to Deloitte, only 14% of US venture capital investment professionals are women. In 2020, only 2.3% of global venture capital funds were given to women-owned businesses, down from 2.8% in 2019. Study results published in Harvard Business Review in 2017 also found that venture capitalists ask female business owners questions differently than male business owners, a bias with significant funding impacts.

If your business is seeking investment, prioritize female-focused venture capitalists to support growth. Some examples of venture capital funds to consider are Halogen Ventures, Female Founders Fund and BBG Ventures.

5. Access grants and other support

If you have problems securing business loans or other funding, you might be able to apply for one or more grants available to women-owned businesses. Mentors and networks of other businesswomen are a great place to start looking for women-focused grants, loans and other support programs. The US Small Business Administration’s Office of Women’s Business Ownership offers the 8(a) Business Development program and loan programs. You can also find support in your area through SBA’s directory or visit its website for more resources and program information. Some other funding opportunities to consider include:

The takeaway

“In a financial system where women and minorities still face longer odds in securing credit, it’s crucial for them to understand what other options are available to help them raise the capital needed to grow their businesses.” — Kerri Thurston, Former Chief Financial Officer at C2FO

The numbers speak for themselves: If you’re a woman or minority business owner, you’re less likely to secure the funding needed to help your business thrive and grow. Injustices illuminated by COVID-19 and social movements arising in 2020 have prompted some financial institutions to begin addressing financing inequities. In the meantime, as a female entrepreneur or other underrepresented business owner, you can take advantage of several strategies — from building supportive networks to leveraging alternative financing — to help your business grow and succeed.

Be part of the change: Here’s how financial institutions and other organizations can improve access to capital for women-owned businesses.

This article was updated November 2022, and originally published April 2021.

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