Small Business Loans for Women

Women only own 39% of the small businesses in America, reports the National Women’s Business Council. According to the Harvard Business Review, a big reason for this gender gap is the lack of funding. In fact, a national study found that female-led small businesses receive less than half of the financial investments and financing as businesses owned by men. This funding disparity is especially startling because women-owned businesses statistically generate 10% more revenue over five years.

If you are a female entrepreneur looking to launch a small business or expand your existing business, a growing number of lenders and financial institutions are offering unique small business loans for women to help close the financial gap and even the playing field.

Small Business Administration (SBA) Loans for Women-Owned Businesses

The U.S. Small Business Administration (SBA) is a federal agency established in the 1950s specifically to provide financial and legal support and advice to American small businesses and entrepreneurs.

In the ’80s, the U.S. government passed the Women’s Business Ownership Act. With these new laws, the SBA began to launch various new programs, business centers, and financial services to aid female business leaders. These include:

• The Office of Women’s Business Ownership (OWBO)
• Expanded funding, including women-owned small business loans like the 8(a) Business Development program (business loans for minority women), the 7(a) program, and SBA Express loans
• The Women-Owned Small Businesses (WOSB) Federal Contracting program

Because the government guarantees the loans (including financial subsidization if you default on your payments), lenders and banks are more likely to extend financing to your small business.

The increased approval rate, paired with the very competitive interest rates and payment plans, makes this a top choice for women who need general business loans and startup business loans.

There’s just one caveat: Meeting the SBA’s qualifications and getting approved for these government-backed loans can be tricky.

SBA 7(a) Loans For Women

The 7(a) loan program is the most popular lending service from the SBA. It provides general-purpose working capital for your startup or business, allowing you to use the loan for a multitude of purposes, including:

• Real estate investments
• Buying furniture, packaging, and other supplies
• Refinancing existing debt
• And much more

Financial details:

• Maximum loan amount: $5 million for a standard 7(a) loan, or $350,000 for a (7a) Small Loan
• Maximum SBA guarantee: 75% to 85% of the loan amount, depending on the total loan amount
• Interest rate: Negotiated with the lender, with a cap set by the SBA’s current maximum
• Financing turnaround time: Five to 10 business days

Eligibility requirements:

• Your operations must be defined as a for-profit small business.
• You need to show investment into your own operations and that you attempted to use other financial resources first.
• You must be able to demonstrate financial need and be in good standing with the U.S. government (e.g., no delinquent taxes, no defaulted payments on other financial programs, etc.)

Specific eligibility terms are set by the individual lender or financial institution that provides the actual funding.

SBA Express Loans

The standard 7(a) loan can take several weeks to process. This timeline may be too long if you’re facing a cash flow problem, a critical debt payment, or a time-sensitive business opportunity.

For these situations, the SBA offers the SBA Express program. It’s one of the fastest small business loans for women on the market.

Financial details:

• Maximum loan amount: $350,000
• Maximum SBA guarantee: 50% of the loan amount
• Interest rate: Negotiated with the lender, with a cap set by the SBA’s current maximum
• Financing turnaround time: 36 hours

Eligibility requirements:

• It is the same as the SBA 7(a) loan program, with specific eligibility terms set by the individual lender or financial institution that provides the actual funding.

The SBA’s Office of Women’s Business Ownership (OWBO)

The SBA operates dozens of district offices across America, with at least one local office in every state. These offices provide localized support for women and their entrepreneurial activities tailored to the specific region’s needs.

The OWBO, in coordination with these local district offices, helps women business owners with:

• Business training
• Local access to credit and capital
• Business counseling
• Help to apply to federal contracts
• And much more

The OWB also operates a nationwide network of Women’s Business Centers.

These centers provide practical assistance to help women overcome the financial and social barriers to entrepreneurial success. The centers also provide resources and support for your day-to-day business operations.

What You’ll Need to Apply

To qualify and get approval for SBA loans for women, you’ll need to find an SBA lender and meet the lender’s requirements. Common lenders who provide financing under the SBA 7(a) loan program include:

• Wells Fargo
• JP Morgan Chase
• S. Bank
• KeyBank
• And many other financial institutions and banks

All SBA lenders will ask for the following forms of documentation:

• A borrower information form (SBA Form 1919)
• Personal background and financial statements
• Business financial statements, including year-end P&L statements for the last three years
• Business certificate/license
• Loan application history
• Three years’ worth of income tax returns
• Resumes for each business principal
• Business overview and history
• Business lease
• Additional documentation if you’re using the loan to purchase an existing business

Bank and Credit Union Small Business Loans for Women

Before we discuss traditional lending, it’s important to note that conventional financial institutions also provide SBA loans. The critical factor is that the SBA guarantees the loan, which increases the bank’s willingness to accept risk, extend approvals to female small business owners, and keep interest rates competitive.

With traditional lending, the bank provides small business loans for women directly to you with no middleman (i.e., an online lending marketplace) and no supporting third party (i.e., the SBA).

Traditional bank small business loans for women offer some significant benefits:

• Low fees
• Favorable interest rates and payment terms
• Customized financial products for your specific business needs
• Secondary benefits, such as a chance to build your business score or the ability to leverage your relationship with the bank into other financial products (e.g., a business mortgage or a corporate checking account)

However, small business loans from a bank or credit union also present some potential disadvantages:

• Very low approval rates with a high risk of rejection
• High eligibility requirements (for example, many credit unions or banks will require you to have an exceptionally high credit score)
• Complicated, time-consuming application processes with a lot of documentation required
• Lengthy, extended approval and funding timelines

Going with a bank or credit union may be worth considering if you’re confident that you have excellent credit and a polished financial history or if you have a well-established relationship with the lender.

Microloans

As their name implies, microloans are very small loan amounts (typically under $50,000).

These smaller loans make financial sense if you need a small investment to get started to overcome a momentary financial hurdle or if you’re a sole proprietorship without a lot of expenses.

Keep in mind that microloans often have more strict requirements about what you can use them for. For example, most microloans stipulate that you can’t use them to refinance other debt or buy commercial real estate.

The SBA offers the SBA microloan program in partnership with local nonprofit organizations in your community.

Alternative Financing Options for Women

Think outside the bank. As you launch and grow your small business, you may be eligible for the following alternative financing options for women.

Small Business Grants for Women

Grants designed to support female entrepreneurs typically have an array of eligibility requirements, such as your business industry, your ethnicity (e.g., some institutions offer grants specifically to help minority women), etc.

If you meet these qualifications, grants are ideal because they provide essential financing with no repayment obligations.

The SBA grant program offers grants for women who work in:

• Scientific research and development
• Technology and innovation
• Exporting

You can also find grants through the broader federal government.

Finally, many grants for women are made available at a local level through:

• Nonprofit organizations
• Community groups
• Small credit unions and local banks
• Private businesses
• Women-centric advocacy organizations

Grant amounts vary widely, and approvals typically require extensive documentation, personal references, and proof that your business operations are related to the grant’s overall vision and mission.

VC Firms and Angel Investors for Female Entrepreneurs

For a minimal subset of women who run businesses representing a significant growth opportunity (e.g., an innovative tech solution, a digital app, a crowdsourced idea, etc.), you may want to consider venture capital funding or angel investments.

Both options involve giving up some of your company’s equity in exchange for financial backing from private investors. With this equity change, you are also handing some of the control and decision-making to these investors.

This type of financial backing isn’t for everyone. Talk to a financial advisor before embarking on this route, as the financial and legal obligations are significantly different from all other forms of lending.

How to Become a Certified Woman-Owned Small Business?

Certifying your business isn’t necessary to access most forms of financing. However, if you get your WOSB certification, you’re eligible to access government contracts and public sector work that the government reserves for women-owned small businesses.

You can become a certified WOSB through the following groups:

• Women’s Business Enterprise National Council
• National Women Business Owners Corporations
• Women’s Chamber of Commerce

Each of the above organizations has its specific requirements. In general, you must meet the SBA’s guidelines for the definitions of a small business and also have a woman placed in the following areas:

• The owner (if there are multiple owners, women must make up at least 51 percent of the ownership)
• Leadership and management of daily operations
• The highest officer position in the business (e.g., CEO or president)

Once approved, WOSB certification lets you access the WOSB federal contracting program, where the government has set aside various contracts and service needs and reserved these jobs specifically for WOSBs.

The Loan Application Process

While it may seem complicated to get financing, the loan application process becomes more manageable if you break it into small steps. Here’s what you can expect.

Preparing Your Application

You will have to gather the necessary documents, such as your EIN, tax returns, and other information. Banks and credit unions outline the requirements for business lines of credit, term loans and other options.

Writing a Strong Loan Proposal

Small business lenders must feel confident that you can put the capital to good use and pay back the loan. A good proposal is crucial for new businesses that must demonstrate that they can deliver good returns for lenders.

Common Mistakes to Avoid

Applying for a loan can be exciting since you can access a lot of capital, but it’s important to avoid some common mistakes during the application process:

• Asking for too much capital will increase the likelihood of getting your application rejected
• Asking for an insufficient amount of capital can bring you back to lenders sooner than you had anticipated
• Not having an effective business plan
• Rushing to the first lender instead of exploring multiple loan options
• Not planning how you will keep up with the monthly loan payments

Finding the Right Lender and Program for You

Small business owners can choose from many lenders. However, you can save a lot of money by finding the right lender and knowing how to compare them. Here’s what you should know before committing to a loan offer.

Researching Lenders

Reading online reviews and seeing which financial products a lender offers can help you determine the top lenders for your company’s needs. It’s also essential to narrow your search to lenders who specifically assist companies that are similar to yours. For instance, some lenders specifically help startups, while others work with small business owners who have many years of experience.

Comparing Interest Rates and Terms

Applying for many loans will give you a wide range of APRs and terms. Most of the loan comparison process boils down to which lender is willing to offer the most competitive rate and favorable terms. It’s also good to look at the lender’s list of fees so you know what to expect. A lengthier loan term reduces your monthly payments, while a shorter loan gets you out of debt sooner and results in higher monthly payments.

A higher business credit score will grant you a lower interest rate on your loan. If you are still a few months away from applying for a small business loan, now is a great opportunity to stay on top of your payments and trim your credit lines. That way, your business credit score will be in a good position by the time you are ready to apply.

Special Programs for Women Entrepreneurs

Some U.S. grants are exclusively available to women business owners. Looking for these special programs can minimize how much money you have to borrow from lenders.

Other Special Considerations

Each small business owner has a different financial situation. It’s vital to assess your budget and determine how much you can afford to repay each month. Small business owners with tight budgets may want to consider a lengthier loan or a financial product that initially starts with a more generous payment plan.

While receiving extra capital can do your business plenty of good, the way you use that capital determines its impact. Optimizing how you invest in your business can lead to higher long-term returns and make it easier to pay off the loan.

FAQs About Small Business Loans for Women