Iconic Tour

Lending gap or not, women are beating out men 5 to 1 in this booming sector

Rohit Arora, CEO and co-founder of Biz2Credit.com
Business professionals arm wrestling in the office
Li Kim Goh | Getty Images

The U.S. economy has made great strides over the last decade as it continues to rebound from the country's worst financial collapse since the Great Depression. Women entrepreneurs have been at the forefront of the economic recovery as female-owned companies grew at a rate five times the national average over the last nine years, according to The 2016 State of Women-Owned Businesses Report, commissioned by American Express Open.

There are now an estimated 11 million women-owned companies, a 45 percent increase in the past decade, and they are responsible for more than $1.6 trillion in revenue.

Recognizing this trend, President Trump has backed his commitment to women entrepreneurs by appointing Linda McMahon as head of the SBA. As president and CEO of WWE, McMahon grew a regional wrestling league to a billion-dollar enterprise. She later co-founded Women's Leadership LIVE, a company that promotes leadership opportunities for women by providing them with proven processes and sustainable strategies and by organizing conferences.

"I want to be a strong advocate for women and for minorities and veterans and with members of Congress to ensure we have the right regulations to help our businesses grow," McMahon told the Senate Small Business and Entrepreneurship Committee before her confirmation by the full Senate in February.

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That's a pledge women entrepreneurs in America want to hear. That's because women entrepreneurs still lag considerably behind their male counterparts in key financial categories, according to Biz2Credit's annual gender-based survey of 25,000 small businesses in 2016.

According to Biz2Credit, 29 percent of the registrations on the platform came from female entrepreneurs, up from 27 percent in 2016. Average annual revenues of women-owned businesses jumped by 47 percent, to $210,000, in a year-to-year comparison. However, they still trail the average revenues ($363,414) of companies owned by men. The difference was a whopping 73 percent higher revenues for male-owned businesses.

The SBA and lending industry can do more to educate women on the underlying steps to make their businesses more credit-worthy and attractive to lenders.
Anita Campbell
founder and CEO, SmallBizTrends

Meanwhile, average annual earnings for women-owned businesses were $117,064, a 61 percent increase, while male-owned firms averaged $195,574. Thus, the gap between the earnings of male and female business owners was a sizable $78,510 differential.

What the numbers show 

Overall, the figures prove that 2016 was a strong year for small-business owners, and the outlook for growth in 2017 is just as promising. Although there was a significant gender gap in average revenues, the difference in the average approved loan size for men- and women-owned companies (approximately 6 percent) was much slimmer. This is an encouraging sign for potential growth and a long-term commitment of women-owned businesses.

Last year the average funded business loan for women-owned firms was $99,000. In comparison, the average size of a business loan for male entrepreneurs was $105,172. However, men-owned businesses had about a 25 percent better chance of their loan being approved.

The lower loan-approval rates for women-owned companies is partially attributed to their four-point drop in credit scores, to 595 — slightly lower than the traditional benchmark score of 600 that mainstream lending institutions typically desire. Their credit scores were also 17 points lower than male entrepreneurs. This comes at a time when the economy was relatively strong and interest rates were very low.

Crowdfunding for women 'open for business'
Crowdfunding for women 'open for business'

"Women owners who are striving for financial success, such as to become a million-dollar-a-year business, are educating themselves so they can achieve their goals. If that means learning how to improve their credit worthiness so they can qualify for a loan, they are doing that," says Anita Campbell, founder and CEO of SmallBizTrends, a top online resource for entrepreneurs. "They are taking the steps to position their businesses to be attractive to lenders and investors, so they can secure the money to grow."

The disparity in credit scores might initially seem discouraging, but it shows that women are inclined to taking risks to grow their companies. Moving forward, it will be interesting to see the amount of business owners willing to take risks as the Federal Reserve is expected to introduce several interest rate hikes in the near future this year, thus making the cost of borrowing higher.

Loan applications from women business owners in Georgia and North Carolina — particularly around Atlanta, Charlotte and Raleigh-Durham — are on the rise. As the U.S. increasingly becomes a knowledge-based economy, geography becomes less important. Companies don't have to be in New York or Silicon Valley. Lower cost structures in southern states help grow the economies in those states. The top five states for loan applications by women-owned firms were California, Texas, New York, Georgia and North Carolina.

The services industry represented one-quarter of the businesses (except public administration) owned by women in 2016.

"The SBA and lending industry can do more to educate women on the underlying steps to make their businesses more credit-worthy and attractive to lenders," Campbell adds. "As women business owners, we may think there's not much we can control in the lending process, but that's not true. There are a lot of small building blocks to getting a loan. We can work on those building blocks once we know what they are — and get the financing that positions us to achieve our business dreams."

Women have more opportunities now than ever to thrive in business ownership. Start-up costs for businesses across the board have declined and thanks to innovations in technology, launching your dream company is just as easy. Women are outpacing men in attaining college degrees, and this is translating to higher rates of business ownership, which should ultimately eliminate the gender gap altogether.

— By Rohit Arora, CEO and co-founder of Biz2Credit.com