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The gender lending gap shrinks for women biz owners

The small-business gender gap is closing as female entrepreneurs continue to launch businesses at nearly twice the rate of men. This is good news for the economy. The Guardian Small Business Research Institute projects that women-owned businesses with create 5 million new jobs by 2018, about one-third of the 15.3 million total new jobs anticipated by the Department of Labor.

For this sector of the economy, prospects seem bright. Earnings of women-owned businesses increased a whopping 54 percent in a year-to-year comparison conducted by my company, Biz2Credit.com, which analyzed bank data and tax filings of more than 10,000 companies that applied for small-business loans during the past year. Average earnings for women-owned businesses rose to $54,114 in 2013, from $35,135 in 2012.

These improved fundamentals have spurred the fund-raising efforts of female entrepreneurs. Last year twice as many women-owned businesses sought funding than in 2012, raising $55 million through our platform, as confirmed by IRS data. The average loan size: $85,000.


This demonstrates a growth in confidence and a desire for company expansion. It is further evidence of the economy's slow but steady rebound from the Great Recession. Companies do not borrow money unless they anticipate that they will have the ability to pay it back.

Improved balance sheets helped female entrepreneurs improve their credit scores and open the money spigot. Improved profit margins more than doubled, to 59 percent last year from 2012, closing the gap with their male counterparts that slated profit margins of 62 percent during the same period.

The average credit score for women-owned companies rose to 610 in 2013, from 592 in 2012. The 600 benchmark is critical for any business seeking funding. Companies with credit scores under 600 find it next to impossible to secure bank loans and often resort to borrowing money from higher cost sources of capital, such as alternative lenders. Although the average credit score for women-owned businesses was 14 points lower than for male-owned companies, the gap has closed; in 2012 the difference was a whopping 40 points.

(Read more: How small businesses can avoid loan rejection)

Overall, women entrepreneurs are making gains. Here's what is driving the change:

1. Education. More women are enrolled and completing their college degrees. Eventually this fact is showing up in the economy.

2. Remote capabilities. Women can work from home on a laptop or—increasingly—a smartphone, allowing more time to take care of family matters.

3. Productivity enhancements. Women-owned businesses are more competitive, more efficient, and more cost effective than ever before. For instance, the retail industry has changed. Traffic is built via social media as consumers check profiles, reviews and comments about businesses.

4. Digital and social media. Technology advances has significantly lowered marketing costs. Companies can engage in mobile advertising and social media outreach instead of spending a fortune on TV advertising. New tools in the marketing tool kit are often cheaper and more effective in reaching target audiences.

5. Rise of online lending portals. Lending portals and crowdfunding sites have provided women entrepreneurs more access to capital at lower cost. Interest rates, particularly among cash-advance companies, dropped between 5 percent and 6 percent in 2013 primarily due to a boost in competition in the marketplace.

6. Lower start-up costs. Cloud computers have replaced big servers, and companies don't need big offices, as many employees conduct business from home on their laptops, tablets and smartphones. The business world has gone virtual, which saves money for women who have entered high-margin consulting businesses, such as PR, social media marketing, etc.

(Read more: So you want to act like a start-up?)

Not everything is rosy, however. While the small business–loan approval rate for women-owned companies inched up 7 percent to 31 percent in 2013 year-over-year, the funding success rate of female-operated firms is still 8 percent lower than they are for male-owned companies. Part of this can be attributed to the fact that many women-owned businesses are start-ups, and large banks are still relatively unwilling to fund firms that have been in operation for less than two years.

I expect that this scenario will correct itself as women-owned companies mature and expand. As engines of growth on Main Street, that is good news for all of us.

—By Rohit Arora, Special to CNBC.com

Rohit Arora is co-founder and CEO of Biz2Credit, an online resource that connects 1.6 million small-business owners with 1,200 lenders, credit rating agencies and service providers. Since 2007,Biz2Credit has secured more than $1 billion in funding for small businesses across the U.S. Follow Rohit on Twitter @biz2credit.

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