Women who go into business for themselves often face unique challenges, including obtaining the much-needed capital to cover startup costs. Many turn to personal savings and relationships for financial support. That’s according to a recent Babson College and Baruch College annual survey named the Global Entrepreneurship Monitor that surveyed 5,944 individuals between the ages of 18 to 74 about trends concerning women entrepreneurs. The study found that startups operated by women took on average $10,000 in capital. While some women reported that they needed half that amount to get started because they intended on borrowing from friends and family.
Why are women reluctant to apply for small business loans and other lines of credit outside of their personal circle? It could be because the mistakenly believe the myths surrounding small business loans for women. We are here to bust these myths and help women get the money they need to build dream businesses.
MYTH #1 – WOMEN NEED A MAN TO HELP THEM GET SMALL BUSINESS LOANS.
In studies conducted by scholars at several ivy league colleges, investors and bankers prefer to lend money to handsome men that resemble them, even more so than attractive women. This got many women entreprenuers thinking that they had to have a man represent their business in order to obtain capital. This is no longer the case today as lenders recognize the outstanding growth potential that women have in the business world and that they are worthy of borrowing money on their own.
MYTH #2 – GETTING A SMALL BUSINESS LOAN IS TOO COMPLEX.
When heading for a bank to get money, the process will be time-consuming and requires documentation. However, there are far better and less complicated ways to obtain small business lines of credit for women. At United Capital Source, for example, the process is relatively simple. With one phone call or online communication, anyone can complete a quick application and be introduced to several financial products that can support her business.
MYTH #3 – WOMEN HAVE TO HAVE PERFECT CREDIT TO GET SMALL BUSINESS LOANS.
This is another one of those beliefs that has no merit. While having a good credit score matters, unexpected events can occur that can reduce a perfect score to a bad score with just a few missed payments. It’s important to note that there are small business lines of credit even for those with bad FICO scores. Lenders base the decision to lend money on other factors, such as length of time in business and average monthly revenues.
MYTH #4 – THE BEST WAY TO GET A SMALL BUSINESS LOAN IS THROUGH A LOCAL BANK.
If you are running a successful business, then you know how important it is to choose the right local bank to handle your payments. It’s always a good idea to have an account with a bank that has a track record of helping small businesses. However, your bank may not offer the best small business loan terms. Instead, reach out to a larger network of financial agencies that can put you in touch with a small business loan that offers more money and lower fees.
MYTH #5 – IF I TAKE A LOAN, THEN MY PAYMENTS WILL BE HARD TO MANAGE.
Whether you’ve used small business loans in the past or you are considering it for the first time, you may have a negative idea about how they work. Small business lines of credit enable business owners to better manage their cash flow. This is a main reason why businesses succeed. Small business loans don’t have to be difficult to budget for, as there are new more flexible repayment terms available today.
MYTH #6 – I DON’T HAVE ENOUGH COLLATERAL TO QUALIFY FOR SMALL BUSINESS LOANS.
It’s easy to confuse the different types of loan programs out there, and think that you need collateral to put up to get funded. While it’s true that women entrepreneurs who are just starting out may have less collateral than men, there are small business loans available to women that require zero collateral.
MYTH #7 – MY BUSINESS ISN’T GENERATING ENOUGH PROFIT TO GET A SMALL BUSINESS LINE OF CREDIT.
Some banks will only approve a business that’s generating at least $25,000 a month in revenues, which has been shown to reduce risk in lending. However, based on the State of Women-Owned Business Report published by American Express Open, around 89% of women-operated companies generate less than $100K annually. There are small business loan solutions that are available to businesses earning around $5,000 each month.
MYTH #8 – BANKS SEE WOMEN IN BUSINESS AS MORE RISKY, SO WHY BOTHER?
This is an old-fashioned idea that has prevented many women from stepping foot in a bank or attempting to explore small business loans of credit. Today, financial experts know that women entrepreneurs are actually outstanding customers who pay their debts on time. According to Experian, one of the largest credit organizations, women have less debt and make their payments on time more often than men. This means, financial firms are more apt to view a women entrepreneur as someone less risky to do business with.
MYTH #9 – IF I TAKE OUT A SMALL BUSINESS LOAN, I’LL HAVE TO REPORT WHERE IT’S SPENT.
It can be easy to think that if you take out a small business line of credit that you will then have to report every single place the money is spent on. While it’s a good idea to track this for internal and tax purposes, there is no need to report this to your lender. Instead, you can use the funds for any business need, including expansion of operations and hiring new people.
MYTH #10 – I’M A WOMAN IN BUSINESS AND MORE APT TO BE TARGETED BY SCAMS.
Up until a few years ago, there were a lot of predatory lending practices occurring both online and through local firms. Women were often targeted by lenders imposing higher fees based on gender alone. Congress passed the Equal Credit Opportunity Actthat makes such practices illegal. An added Truth in Lending law makes it a requirement for all lenders to reveal all costs for small business loans, including the option to pay a loan off early without penalty.
We hope that you have found this useful and that you have a better idea of how a small business line of credit can support your women-owned business.