What is a Small Business Loan for Women?
Small business loans for women can be accessed through conventional lenders as well as grants provided by the government and non-profit charities. Conventional financing options include loans, lines of credit, and business credit cards. While a woman’s presence in the business world is increasing, it is still, unfortunately, a male-dominated field. Female entrepreneurs get a disproportionately small portion of investment and financing. As the lender’s character and presentation of the borrower are taken into consideration, many women (particularly minority women) are subjected to the biases of conventional lenders. The SBA and the non-profits have created grants and microloans to counteract this bias.
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Credit requirements differ based on the type of loan, the size of the investment and the institution you are borrowing from. The most important factor in acquiring a traditional loan is your credit score. The most commonly used credit score is the FICO SBS which is based on a mix of your personal and business credit history. The SBA and some banks have specialized loans for startups which only look at personal credit history, but this credit needs to be very strong. You can also get a business credit card to help establish business credit. The SBA has a loan program called the SBA 8(a) loan, which lends money, with lower credit standards, to entrepreneurs from socially and economically underprivileged backgrounds. The SBA also backs startups they believe will help develop a local community, through the SBA 504 loan program. The credit requirements are typically more lenient for online lenders and alternative financing than they are for traditional banks or SBAs.
You can have bad credit because you have failed to make payments in the past, have acquired too much debt, or just have too short a credit history. By using a business credit card and consistently making payments on it, you can gradually reverse bad credit. Conventional lenders rarely loan money to businesses or individuals with bad credit. Some alternative lenders are more lenient, but they typically have much higher rates. If your business has consistent daily credit card sales then you may qualify for a merchant cash advance, which buys a percentage of your future credit card sales at a discount. Be wary though, because merchant cash advances are not well regulated and there are some predatory lenders out there. Some grants may be an understanding of the conditions which lead you to have bad credit and will reward you money based on the potential they see in your business.
No Credit Check
Most traditional loans involve credit checks. There are a number of alternative options, which have advantages for those with poor credit or who are in need of short-term cash flow. However, the fees tend to be significantly higher than traditional loans. There are some micro-loan programs financed by SBA, non-profits, or peer to peer, which are designed to help finance people from disadvantaged backgrounds and sometimes do not require credit checks.
Through a mix of unconscious bias and systematic disadvantages, minority women have a much lower approval rate for conventional loans. Minorities in America tend to come from poorer backgrounds and as such are less likely to have collateral to help obtain their first small business loan. In response to this, the SBA started the 8(a) loan program, designed to back loans to people from disadvantaged backgrounds. Also as a response to this, there are some grants designated to minority women. Including the Minority Business Development Agency which provides educational resources and numerous grants for minority entrepreneurs.
While loans are an integral aspect of operating a small business, they may not need to be the first place you turn to finance your business. If you can qualify for government or non-profit grants, then you will be able to acquire the capital required to grow your business, without needing to pay it off. Grants are typically given for a specific purpose, and the funds can only be used for that purpose. For example, if you get a grant to upgrade the computers at your business, you cannot spend the remaining money stocking your inventory.
Since the benefits of grants are quite obvious, there are usually a high number of applicants, which make them very competitive. However, many grants are oriented towards particularly marginalized groups, which makes them more accessible to entrepreneurs who belong to these groups.
While this is far from comprehensive, here are some grants that are aimed at women: The SBA InnovaterHER Challenge: An annual prize which grants $70 000 to three female small business owners given out by the Small Business Administration.
The Eileen Fisher Women-Owned Business Grant Program: Each year this grant awards $10,000 to 10 different businesses. The business needs to be at least three years old, majority women-owned, and have an annual revenue of less than $1 million The FedEx Small Business Grant: Is a contest which awards $125,500 annually, split between 10 different recipients. The winners are decided based on a public voting processes, so applicants can use this as a means of promoting their business. There are numerous smaller scale local grants which can be found through the SBA’s website.