Business Financing For Women: Options and How To Choose

Although women own 38% of all businesses in the U.S., according to the Women’s Business Enterprise National Council, they often face obstacles when obtaining financing.

In 2022, 25% of women-owned businesses were rejected for a loan, compared to 19% of male-owned businesses. Beyond that, women of color were denied business relief funds two times more than male business owners, a 2022 California state report found.

Access to financing is an essential part of starting and growing a business. If you’re looking for business financing for women, there are various options available, including loans, grants and crowdfunding.

Business Financing Options for Women Entrepreneurs

There are a variety of financing options for women entrepreneurs, including traditional business loans, SBA loans and women-owned business grants.

Traditional Business Loans

One option for women’s business financing is a traditional small business loan. You can find both short- and long-term business loans from private lenders, such as banks, credit unions and online lenders. Some business loans are unsecured, meaning they don’t require collateral, whereas others are secured by a business asset or personal guarantee.

The interest rate, terms and eligibility criteria will vary by lender, so shop around and compare your options. Generally, borrowers with the best credit will qualify for the lowest interest rates, as well as higher loan amounts. You’ll also need to meet other requirements, such as having a minimum annual revenue of $100,000 or being in business for at least a year.

SBA Loans for Women-Owned Businesses

You may also consider an SBA loan, which is guaranteed by the U.S. Small Business Administration. Interest rates can be competitive on SBA loans and you may be able to access repayment terms as long as 25 years.

There are several types of SBA loans, including:

• SBA 7(a) loans. These loans are available for up to $5 million with repayment terms as long as 25 years, depending on how the funds are used. You can use a 7(a) loan to purchase supplies, improve real estate or acquire another company, among other uses.
• SBA 504 loans. These loans provide up to $5.5 million with terms up to 25 years. SBA 504 loans are designed for purchasing fixed assets, such as real estate or equipment, or funding property upgrades.
• SBA microloans. Microloans offer up to $50,000 for small businesses to buy inventory, purchase equipment or meet other needs. The maximum repayment term is six years.

You can apply for an SBA loan through an SBA lending partner, such as a bank or credit union. Women business owners might also explore the SBA 8(a) program, which is a nine-year program that helps socially or economically disadvantaged business owners. While the 8(a) program doesn’t provide loans, it does offer specialized training and support to promote long-term growth of your business.

Grants

Although business grants can be competitive, pursuing them could be worth the effort. Unlike business loans, you typically don’t have to repay grants and can put the funds directly into your business.

You can find grants from the federal government, state governments and various other organizations. One place to start is Grants.gov, a federal database that can connect you with hundreds of small business grant opportunities.

Although the SBA doesn’t offer grants specifically for women, it does provide free resources, such as training and consulting at Women’s Business Centers and Small Business Development Centers around the country. Use the SBA’s location finder tool to find centers in your area. Additionally, the nonprofit organization SCORE is an SBA partner that also offers free workshops and can match you with a business mentor.

Finally, there are a variety of private organizations that offer grants for women-owned businesses. Some opportunities include the Amber Grant, Tory Burch Foundation grants and Cartier Women’s Initiative Award. You might also submit a universal grant application on the iFundWomen marketplace to get matched with grant opportunities.

Crowdfunding and Peer-to-Peer Lending

Crowdfunding and peer-to-peer lending are two less traditional financing options worth exploring. Crowdfunding involves raising money from your network to finance your business venture. The National Women’s Business Council found that women are especially successful with crowdfunding, beating out male business owners in terms of their success rate by 4.6%.

Pursuing a peer-to-peer (P2P) loan is another option if you don’t have strong enough credit or financials to qualify for a traditional business loan or SBA loan. Peer-to-peer loans are funded by individual investors, so the qualifying criteria can be more flexible. Similar to a traditional term loan, you’ll typically back your P2P loan on a set term, plus interest charges and any loan fees.

Bootstrapping Your Startup

Before taking out a business loan, consider whether you can bootstrap your business from your personal savings or current income. Bootstrapping means covering expenses from your own pocket, rather than taking out a loan or accepting external investment.

You might use your personal savings or income to cover your startup and operational costs. Bootstrapping a business can be challenging, but it means not taking on debt or losing ownership to outside investors.

How To Choose the Right Financing Option for Your Business

As a business owner, you have a variety of options for covering costs, including taking out a business loan, pursuing business grants and trying your hand at crowdfunding or bootstrapping. Business loans are a more costly choice than grants or savings and should only be considered once other options are pursued.

If you need additional financing to purchase equipment, buy inventory or take other steps to grow your business, make sure you have a clear business plan for repaying any debt you take on.

Avoid borrowing more than you need and review the rates and terms of your loan carefully to ensure that it fits your budget. Most lenders will want to see a detailed business plan that outlines your business operations, including your expenses and revenue.

Crafting a thoughtful business plan can help you determine when debt financing is a worthwhile solution for your business needs.