Today is International Women’s Day, and one reason to celebrate is that women’s entrepreneurship is on the rise. According to the American Express State of Women in Business Report, The number of women-owned businesses increased from 402,000 in 1972 to 12.3 million in 2018. In 1972, only 4.6 percent of all firms were owned by women; today the figure is at 40 percent. Further, companies owned by females today employ 8% of the total private sector workforce and contribute 4.3% of total revenues.
The number of women-owned businesses that applied for funding in 2018 increased, although their funding amounts went down, according to an annual study of women-owned companies by Biz2Credit. Additionally, the study found that while average annual revenues increased, credit scores for women business owners and the average age of women-owned companies applying for small business loans dipped.
The U.S. economy last year was among the strongest on record. Optimism among small business owners was the highest ever recorded and, increasingly, business owners were willing to take risks. Businesses owned by women continued to grow during this time, which is a good sign.
Overall, small business owners were willing to take more risks in 2018 because of the solid economy. Women business owners who might have previously held off from borrowing money for expansion or capital improvements, increased their borrowing last year.
Biz2Credit research has found that the average credit scores for women-owned businesses dropped ten points from 598 in 2017 to 588 in 2018 and trailed the scores of their male counterparts (613) by 25 points. On the surface, this is not great news. However, when we take a macro look, women are increasingly becoming entrepreneurial and are applying for loans at earlier stages of their companies’ life cycles than in the past. Younger entrepreneurs have a shorter track record of repayment, and this impacts scores. Other factors in women’s lower credit scores are the wage gap (they have less money to spend and may use credit cards for purchases) and their higher amounts of student loan debt.
At the same time, average annual revenues of women-owned business rose from $202,491 in 2017 to $228,578 in 2018, according to the analysis of 30,000 applications from business owners through the online platform last year.
“I’m encouraged that the Biz2Credit study confirms what I see every day: women are savvy entrepreneurs. We’re doing so many things right when it comes to launching and expanding our businesses: growing revenue year over year, seeking financing earlier on and keeping operating expenses low,” says women’s leadership expert Adrienne Garland, CEO and founder of She Leads Media.
“These are all hallmarks of efficient and effective business practices. However, the survey suggests that women still have some work to do in an important area – improving credit scores,” Garland adds.
Funded amounts were lower for both men and women in 2018. This can be attributed, in part, to the high number of SBA loans granted during 2018. The SBA reported in October that in FY 2018, more than 60,000 7(a) loans made, with a total dollar amount of $25.37 billion. The 7(a) program is SBA’s flagship program, which offers guarantees on loans to small businesses of up to $5 million. These loans, which come with reasonable terms and conditions, are used for acquiring land, purchasing equipment, or working capital and frequently help borrowers who might not otherwise qualify for traditional small business loans from banks.
“We are providing tools, resources, and access to capital for America’s 30 million small businesses, and our FY18 numbers bear that out,” SBA Administrator Linda McMahon said in a press release. “SBA’s 7(a) and 504 loan programs have never been more dynamic, easy to use and accessible — helping small businesses succeed and thrive.”
Additionally, younger businesses might be more conservative in asking for money and seem to be more carefully managing their growth. Many women-owned businesses are self-funded and use bootstrapping methods to launch their firms. Typically, women are more risk averse than men and will seek to avoid high-interest rate loans available through non-bank lenders. Often, women-owned firms are underfunded; and lower credit scores are a big issue.
“There are some very practical actions that women can take to improve credit scores such as ensuring they are making payments on time, keeping credit utilization to 30 percent or less, and limiting the number of credit inquiries, to name a few,” Garland says. “With improved credit scores, women can seek larger amounts of financing, and use that as leverage to propel their businesses to even greater levels of growth and profitability to accomplish their goals and pursue their dreams.”
Where are women-owned firms growing?
According to Biz2Credit figures, the top five states for applications from women-owned businesses were California (13%), Texas (11%), New York (6%), Georgia (6%), and Ohio (5%). Overall, we have seen the most funding requests coming from technology centers like Silicon Valley, Austin, Texas, and Manhattan – areas where the real estate markets are also booming.
Nearly one-in-five (19.7 percent) loan applications from women-owned businesses were in services which include accounting, public relations, translation, and other business services to nail salons and cleaning companies. Retail was next at 18.2 percent, accommodation and food services (14.3 percent), healthcare and social assistance (7.6 percent), and construction (6.4 percent).
Even women-owned businesses that are thriving still face funding challenges, especially when the company is in a male-dominated industry. Maryam Zadeh, who owns the successful HIIT BOX gym in Brooklyn, NY, found it challenging to secure financing, even though she had a personal credit score of well over 700 and a growing customer base.
“We’re a pioneer in Brooklyn with a boutique fitness gym. I have a level of notoriety, but often lenders will ask me where my ‘male partner’ is,” said Zadeh, who has twice moved into larger spaces because of the growing popularity of her high-intensity interval training. “Like any other business, we need growth capital.”
Zadeh says she has been frustrated to learn that male-owned gyms have gotten greater amounts of funding in a shorter period of time. Nonetheless, she has plugged on and recently secured a bridge loan that enabled her to secure a larger space in the Gowanus section of Brooklyn, a once-gritty area that is now booming.
“We are adding to our customer base, but with that growth comes increased costs, including front desk help, salaries, and other costs,” Zadeh says. “There is always something to spend money on during a growth phase.”