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The gender lending gap hurts women-owned biz

Women-owned businesses lag in receiving bank loans.

While the U.S. economy has improved slowly but steadily since the latter part of 2012, women entrepreneurs — who generate nearly $1.5 trillion in revenue nationwide — lag behind their male counterparts in several key components of business ownership, and a significant gender gap still exists when it comes to securing financing.

Despite seeing a 12 percent jump in revenue ($142,804), women entrepreneurs were overmatched by the financials of men-owned companies, among the 35,000 businesses surveyed in a year-to-year comparison. To tabulate these figures, my company, Biz2Credit, examined small-business loan applications made by more than 35,000 businesses from all across the country.

Women Entrepreneurs
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Businesses owned by men had average revenue of $229,115, more than 60 percent higher than that of women-owned companies. In terms of profitability, male-owned businesses had earnings of $117,096 in 2015. In contrast, women-owned businesses had earnings of $72,529 during the same period — a jump from $67,950 in 2014. Meanwhile, average credit scores for men (615) were 15 points higher.

Loan approval rates for women-owned businesses were 33 percent lower than men-owned companies. Aside from lower revenue figures and credit scores, a reason for this disparity was the percentage of loans that went into default. In 2015, approximately 1.25 percent of women-owned businesses defaulted on their loans, a decrease from 2014 (2.03 percent) but still significantly higher than male-owned businesses in 2015 (0.66 percent) due in part to cash-flow issues.

However, there is much positive news. For instance, female entrepreneurs have made great progress in the last two decades, according to the recently published 2015 State of Women-Owned Businesses Report, conducted by American Express Open. There are now 9.4 million women-owned businesses in the U.S. Since 1997, the number of women-owned business grew by 74 percent, and the fastest-growing demographic of entrepreneurs in the U.S. over the last two decades are African-American women (32 percent).

Entrepreneurship is high among women in the states of California, Texas, Florida, New York and Georgia. They are running successful companies in professional services, as well as retail, food service and health care.

Much of the progress for women business owners can be accredited to an increasing number of initiatives promoted by the Small Business Administration (SBA) under the direction of Chief Administrator Maria Contreras-Sweet. The agency's Office of Women's Business Ownership has established a national network of more than 100 Women's Business Centers nationwide to assist females in starting and growing their businesses with a long-term goal of leveling the playing field.

Additionally, the SBA's Women-Owned Federal Contracting program offers special assistance to economically disadvantaged women-owned companies by exclusively offering 5 percent of the estimated $400 billion in federal contracts.

Other nonprofits, such as the National Association of Women Business Owners — the unified voice of all women-owned businesses in the U.S. — have made great contributions in the unprecedented growth by offering a central location for educational resources and advocacy programs to foster start-up and small-business growth through exclusive partnerships and other programs with corporations and organizations, including the SBA and the National Federation of Independent Business.

With women lagging behind in senior leadership roles, many are opting to pursue their entrepreneurial dreams. According to Pew Research Center, as of 2013, about 1 in 6 board members of Fortune 500 companies (17 percent) were women, up from 10 percent in 1995. Things are improving in corporate America, but gender parity on corporate boards is still far away.

The majority of President Obama's term has coincided with a cyclical uptick in the economy. Interest rates at many banks — both large and small — are still very low, and the decline in the price of oil has benefited much of the economy. We live in a country that encourages entrepreneurship and risk-taking. It should come as no surprise that more women are starting their own businesses and that those businesses are performing better than before. Although the gender gap in small-business finance still exists, it is lessening.


—By Rohit Arora. Mr. Arora is the CEO and co-founder of Biz2Credit.com, a leading online marketplace that connects entrepreneurs with small-business loan options. He was named Crain's NY Business "Entrepreneur of the Year 2011."