Small Business

Women business owners get nearly 50% less in funding than their male counterparts — and it's getting worse

Rohit Arora, CEO and co-founder of
Gutzemberg | Getty Images

A new report released Wednesday reveals an alarming trend: The lending gap for women is widening dramatically, seriously impacting growth prospects for this key demographic group.

The study surveyed 27,000 small businesses nationwide in February in a wide range of industries. Services (except public administration) represented 21.9 percent of the women-owned companies in the 2017 study, followed by retail (18.4 percent), food/hospitality (12.4 percent) and health care (8.3 percent).

Last year the average funded business loan for women-owned firms was $57,097, down from more than $99,000 in 2016, according to Biz2Credit's annual State of Women-Owned Small Business Finance Study. In comparison, the average size of a business loan for male entrepreneurs was stable, at $103,604.

This comes at a time when women are starting more businesses in the United States than ever before. Women-owned businesses in the United States have more than doubled in the past 20 years, as has their revenue, according to the 2017 State of Women-Owned Businesses report, commissioned by American Express OPEN.

In fact, women launch an average of 849 new businesses per day, up 3 percent from 2016, according to that report. The 11.6 million women-owned companies across America employ nearly 9 million people and generate more than $1.7 trillion in revenue, according to U.S. Census Bureau data.

While the growth of women-owned firms has been impressive, Biz2Credit's study finds that their revenues declined in 2017 from the prior year, while revenues for male-owned businesses grew during the same period.

Revenues for women-owned businesses slipped from $210,000 in 2016 to $202,491 in 2017, the Biz2Credit study noted. Meanwhile, businesses owned by men — many in booming industries such as IT, construction, warehousing and logistics, generated about 73 percent more revenue in 2017 ($444,227) than they did in 2016 ($363,414) and made almost $242,000 more in comparison to women-owned businesses last year.

There are a number of factors at play causing this lending disparity. One is the fact that many of these women-owned businesses are young start-ups with a shorter track record and low credit scores. (The average age of women-owned businesses in the survey was 56 months, versus 62 months for male-owned businesses.) Encouraged by the improving economy, they jumped into the credit markets. Another is the fact that a large percent of women-owned businesses are in food and hospitality, retail and service businesses — sectors hurt over the last several months.

The average credit score for women-owned businesses last year increased slightly, to 598 from 595 in 2016, the study revealed. In contrast, the average credit score for male-owned businesses was 618, up from 612 during the same period.

Women left behind

The explosion in e-commerce-related industries, such as warehousing and trucking firms, has left women behind. Construction is booming in tech centers, including Silicon Valley, the New York City metro area and Austin, Texas. Women are fast followers, not early adopters, and the gap appears to be widening. For instance, there are very few women who are running construction companies, even though the industry is doing well and the SBA provides assistance to women-owned and minority-owned firms to get government contracts.

"In New York, there is construction all the time. Our business is growing. Minority business enterprise (MBE) and disadvantaged business enterprise (DBE) certification helps. For instance, 20 percent have to be minority businesses for state contracts," said Shobana Raja, the business manager of Sri Construction, a bridge maintenance company based in Roslyn Heights, N.Y., that is expanding into commercial building construction and maintenance.

"There are few women in leadership roles in our industry," added Raja, whose company began in 2011 and now generates about $7 million in annual revenue. "More opportunities are opening up than before. To be able to get into general contracting work, which we want to do, we need more funds that will help us expand. Funding is key right now."

Woman-owned businesses should use technology to accelerate growth and increase revenues. The good news is, the cost of technology has decreased in recent years. That means you may only need a relatively modest loan amount for funds to leverage technology.
Anita Campbell
founder and CEO of Small Business Trends

Although interest rates continue to rise, it is not necessarily seen as problematic for borrowers. The increases have been slow and steady, and the higher rates make it more attractive for banks to approve small business funding requests.

Further, women-owned companies have slightly higher operating costs (52 percent of revenue vs. 50 percent of revenue for male-owned firms).

"Woman-owned businesses should use technology to accelerate growth and increase revenues. The good news is, the cost of technology has decreased in recent years. That means you may only need a relatively modest loan amount for funds to leverage technology," says Anita Campbell, founder and CEO of Small Business Trends, a top online resource for entrepreneurs.

Just one in eight start-up CEOs are women and the most highly compensated executive roles continue to be dominated by men.
Thomas Barwick | Getty Images

"But think of this as a staged strategy. Get a modest loan now, invest in technology, grow revenues, then qualify for even more growth funding in a year or so," Campbell added.

According to Biz2Credit figures, the top five states for applications from women-owned businesses were California, Texas, New York, Georgia, and New Jersey. Each of these states has seen a rebound in their real estate markets, which impacts construction and logistics. Further, all of them have significant technology industries. The lower cost structures in southern states, such as Georgia, have spurred growth of women-owned firms in those areas.

Women have more opportunities now than ever before 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