Broadening Access To Capital For Women Entrepreneurs

The NWBC recently highlighted access to capital as a major issue facing female entrepreneurs.

Tina Amirtha spoke to Carla Harris, the Chairwomen of the National Women’s Business Council (NWBC), about the findings of the NWBC’s 2013 report regarding the current economic issues facing U.S. based women-owned businesses and the importance of broadening access to capital for women entrepreneurs.

Women-led businesses need to get more creative with their capital resources. Now. According to a new report from the U.S. National Women’s Business Council, numerous studies indicate that women rely heavily on personal savings to start a business, a tendency that is associated with lower amounts of start-up capital.

Accessing more lucrative loans and investments is likely to spell more profitable growth. And now is the time to do it, says the NWBC.  

The NWBC identifies economic issues that pertain to U.S. based women-owned businesses in order to promote female entrepreneurs nationwide. In its annual report to the President, Congress and the U.S. Small Business Administration this year, the NWBC highlighted access to capital as a major issue facing female entrepreneurs. The research is meant to inspire policies to embolden women-led businesses across the United States.

Here are a couple of findings from NWBC’s 2013 report:

  • Women-led firms that had annual receipts above $100,000 were less likely to fold during the period 2007 – 2010.  
  • Male entrepreneurs are more likely than their female counterparts to use bank loans and business profits to grow their businesses.

Other NWBC research showed:

  • In 2007, venture capital resulted in the highest receipts for businesses, compared to using loans or reinvesting business profits.
  • Almost no women-led firms used venture capital investments to expand.
  • While over a quarter of employer firms that used personal savings started with less than $5000, around half of those firms that took out bank, government or government-guaranteed loans started with at least $100,000 in startup capital.

The NWBC’s findings come at a time when widening access to capital is increasing the number of new, women-led businesses in the United States. In the five years leading up to 2012, the number of new female-owned businesses grew by 54 percent, while the nationwide average saw only 37 percent growth, according to a 2012 report from American Express.

Women are opening more businesses in the United States, made possible through ever-increasing access to capital, the report says.

“The research that the NWBC has done shows that companies that are very well capitalized at their commencement essentially have a better survival rate and therefore profitability rate,” says Carla Harris, the Chairwoman of the NWBC. So, obtaining loans, venture capital and angel investing should be on every businesswoman’s agenda.

Now that the economy is showing signs of an uptick, investors are clamoring for good investments to pour their money into. “We’re in a great economic environment for women-owned businesses, possibly a perfect storm,” Harris says.

Growth: Loans and Venture Capital

Women should now take advantage of record low interest rates to obtain business, government or government guaranteed loans.

“If you manage to have a good credit profile, I think that it could not be a better time to think about starting a business, particularly if you have any type of professional track record, which most entrepreneurs do before they actually go out on their own,” Harris says.

When a startup is ready to expand, women entrepreneurs can shift their focus to obtaining venture capital. “Right now, there’s a lot of capital that has been sitting on the sidelines because of low consumer confidence,” she says, referring to the economic downturn.

Just Starting? Crowdfunding and Angel Investing

But for those women-led firms that are just getting off the ground, risk-averse venture capital may prove difficult to come by, as VC firms are generally disinclined to invest in startups. “There are now other funding sources that are in everybody’s purview, including crowdsourcing and more organized angel investing,” says Harris.

While angel investors generally fund less than venture capitalists, they still dole out more for start-ups than what would come from personal savings or credit cards.

These angels cut checks to promising businesses from their personal funds or a pool of their and other angels’ money. They then become informal advisors to, and shareholders in the startup.

Crowdfunding, the phenomenon behind the successful sites Kickstarter and Indiegogo, allows everyday online consumers to peruse budding entrepreneurs’ pages and judge how much to invest in their projects, depending on the attractiveness of each pitch. The business hopefuls receive capital, while the investors become shareholders.

The Bottom Line

“I think that to the extent that there’s increased access to various types of capital for women owned small businesses, you will see a greater number of them get to scale and profitability,” says Harris.

Personal savings and credit cards position their businesses for limited returns. But to position their businesses for growth, women need to bring other types of capital funding into the mix.

“The bottom line is, the investment environment is ripe with opportunities, and women should be ready to seize these opportunities,” Harris says.

Picture courtesy of cooldesign/FreeDigitalPhotos.net

Tina Amirtha spends part of her time developing software and the other part writing. Based in the Netherlands, she has covered female affirmative action efforts in Dutch higher education. As a female engineer, she is interested in how women can gain more visibility in male-dominated fields, like STEM. Follow her on Twitter @tinamirtha

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