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New Study: Women Entrepreneurs Ask For Less Financing Than Men, Get Smaller Loans At Higher Rates

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Women entrepreneurs ask for less financing than men do, and receive loans at lower levels with higher interest rates, according to a new study by Fundera, an online small business loan aggregator.

The new data, while based on just 8,423 small businesses who applied for credit (and self-reported their gender) between February 2014 and June 2016, offer a bleak look at the uphill battle that women entrepreneurs and small-business owners face in opening their doors and expanding their operations. Fundera's marketplace allows borrowers to shop for financing from dozens of online lenders, including Kabbage, American Express, Live Oak Bank, On Deck and Funding Circle.

“There is a consistent and systemic disparity in how men and women entrepreneurs can finance their small businesses,” according to the Fundera study. “Women receive fewer, smaller loans for higher interest rates, and this doubtless contributes to their disproportionately small influence over the national economy.”

The study doesn’t answer the questions about why, but it does show that women entrepreneurs ask for less, get less and pay more for their small-business financing. Women small-business owners, for example, asked for an average of $89,000 in debt financing compared to the $124,500 that men requested – a roughly $35,000 gap. That’s consistent with research that women ask for smaller raises, and do so with lower frequency, than do men.

The survey also showed a gap between approvals of female small-business owners and male ones. Among women who sought financing 32% received approvals, compared to 35% of men. Worse, not only did women entrepreneurs get offered smaller loans across every loan product from the same group of online lenders, they also received more costly debt than did male borrowers.

“Interesting is one word for it, depressing is another,” says Brayden McCarthy, Fundera’s vp of strategy. “You go down the list, and it’s all fairly depressing.”

In particular, women-owned small businesses were far more likely to receive short-term funding, with APRs varying from 14% to 50% or higher, than men. Roughly 30% of women settled for the more expensive short-term loans, while only 23% of men did so. Even for short-term loans, women on average paid a 13% higher interest rate for the same product, according to the study.

At the other end of the spectrum, with SBA loans, women received less funding as well, $59,857 on average, versus $156,279 for men. The survey’s results on this run counter to research from the Urban Institute that women-owned businesses are more likely to get SBA loans.

“It’s a very interesting piece of work,” says Karen Mills, the former administrator of the U.S. Small Business Administration and now a senior fellow at Harvard Business School. “There are gaps in access and opportunity. You can ask why? Is there bias? Or are the applicants on average less creditworthy? Or do they on average need less money because they have smaller businesses and less robust plans? We don’t have that information.”

The Fundera study, for example, also found that women entrepreneurs have lower credit scores than men and have significantly lower annual revenues. Since riskier borrowers pay higher rates, those with lower credit scores and lower revenues would generally pay higher APRs to get financing. However, being reliant on costly debt and not having enough capital can also contribute to a downward spiral of lower credit scores and lower revenues.

“Whatever the cause might be, this demonstrates a sizable disadvantage for women growing their businesses,” McCarthy says. “The only way we are going to solve this issue is if men who are in power recognize that they have to open the doors of opportunity a bit wider. It is incredibly important that we talk about this, so it is not just the one woman at the table beating the table.”

Women own nearly one in three small businesses in the United States, accounting for nearly 10 million companies, according to the National Women's Business Council. And, as the report notes, the disparity in debt financing mirrors that in Silicon Valley, where venture capital firms have been far more likely to invest in male-owned businesses than female-owned ones.

The Fundera survey is based on data from 8,423 business owners, roughly one-quarter women and three-quarters men, who it asked for gender identification. Of those, roughly 700 men and 200 women received funding.

Fundera’s McCarthy says that the company plans to do further studies of access to financing by minority entrepreneurs and older entrepreneurs.

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