Gender lending gap narrows for women business owners

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The small-business gender gap for female entrepreneurs seems to be shrinking as the U.S. economy steadily improves. According to a study just released by Biz2Credit, a leading small-business lending portal, last year the approval rate on loans for women-owned businesses was 15.3 percent, up from 11.7 percent in 2013. In contrast, the loan approval rate for male-owned businesses was 21.5 percent, up from 18.8 percent in 2013. This narrowed the lending gap by 29 percent.

This is great news for an estimated 9 million women-owned businesses and other budding entrepreneurs. We have never seen more success among female entrepreneurs. According to the National Association of Women Business Owners (NAWBO), women-owned firms in the U.S.:

  • Employ nearly 7.9 million people.
  • Generate more than $1.4 trillion in sales and generate 11 percent of revenues in the U.S. economy.
  • Account for 30 percent of all privately-held firms.
  • Contribute 14 percent of employment.

Further, an estimated 1 in 5 firms with revenue of $1 million or more is woman-owned, and 4.2 percent of all women-owned firms have revenues of $1 million or more.

In the midst of an economic recovery in the U.S., revenues of women-owned businesses increased nearly 40 percent in 2014, according to the study conducted by my company,, which analyzed bank data and tax filings of more than 15,000 companies that applied for small-business loans during the past year. Average annual revenues of women-owned businesses increased to $127,222 in 2014, up from $91,488 in a year-to-year analysis.

"The volume of loan requests from female entrepreneurs increased significantly last year. ... This is a strong sign of growth, as small-business owners typically only borrow when they are confident that they can repay their debts."

The volume of loan requests from female entrepreneurs increased significantly last year as the study found that 36 percent more women-owned businesses applied for credit last year. This is a strong sign of growth, as small-business owners typically only borrow when they are confident that they can repay their debts.

The types of business loans women business owners raised ranged the gamut, Biz2Credit reported. They included working capital, SBA and microloans, as well as nonbank alternatives, including cash advances and factoring.

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The fortunes of companies run by females are on the rise. There are five reasons why the bottom lines of women-owned businesses are improving:

1. The improved economy has made it easier for women-owned businesses to get loans.

2. Peer-to-peer or "marketplace lending" by institutional investors in the small-business credit marketplace is changing the industry. While big bank lending is up, they tend to focus on larger amounts. Marketplace lenders are charging attractive interest rates and offering longer terms, thereby taking market share from factors and cash-advance companies.

3. With experience, women-owned businesses have become more competitive, more efficient and more cost effective than ever before.

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4. Online lending portals have made it easier for borrowers to reach banks as well as nonbank lenders, such as marketplace lenders, microlenders and other types of financial institutions.

5. Start-up costs of all types of businesses have gone down. Companies don't need big offices, and many of them are hiring part-time employees who can work virtually from home on their laptops or tablets and smartphones.

Although there was significant growth for women-owned businesses in the last year, businesses owned by men are still more dominant on the balance sheets. Male-owned companies generated more than 50 percent revenue, on average, than women-owned businesses and averaged about 15 points higher on their credit scores. That is why approval rates for women-owned businesses were 29 percent lower.

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While things have improved, they are far from perfect. However, as women small-business owners gain more experience, they will become more efficient at running their companies, thus generating more revenue and profits and improving their cash flow. This puts them in a position to increase their business credit scores and improve their chances of securing capital when they are ready to expand.

Women are becoming lions in small business. Hear them roar.

—Rohit Arora, special to Mr. Arora is co-founder and CEO of Biz2Credit. Follow him on Twitter @biz2credit.