The entrepreneurial field is quite saturated, but women have stormed it with a bang, courtesy of small business loans for women. American Express OPEN report indicates that women-owned businesses grew by 45% between 2007 and 2016, and the number is growing by leaps and bounds. Essentially, women make up more than 49% of the US population, and they control $14 trillion of the US personal wealth. More so, they have become the primary source of income for over 41% of households.
These statistics help us understand the impact of women in business. However, most women own small and medium businesses which tend to be concentrated in overall low-growth and low-profitability sectors. But these small businesses create a lot of jobs in the U.S. economy.
Despite their entrepreneurial spirit and impact in the economy, women still struggle to finance their businesses. The good news is there are financial institutions and business centers that focus on supporting women who aspire or currently are small business owners.
20 Financing Options for Women-Owned Businesses
Outlined below are loans and grants that women can apply to start or boost their businesses. This write-up focuses on financing options designed with favorable terms to help women succeed in business and achieve the American Dream.
1. Government Guaranteed Term Loans
The Small Business Administration (SBA) is a U.S. government agency that enables banks to offer low-rate and long-term loans to small businesses and entrepreneurs. The SBA also sponsors various business development programs including the Women’s Business Centers (WBC) that help women start and grow their businesses. Whether through a WBC or any SBA lender, women can access government-guaranteed loans at favorable terms to the market. The SBA is not a direct lender. Rather, the SBA guarantees up to 85% of the principal amount of the loans offered by certified lenders according to one of the SBA’s loan programs. The government guarantee explains why most banks are able to charge less than 9% annual interest rates on their small business loans. Women entrepreneurs can receive up to $5 million in financing for a wide range of business purposes including working capital, expansion, acquisition, or starting up. The catch is these loans are mostly given to people who have strong credit scores and run established businesses with profitable tax returns. Also, the banks funding SBA loans typically require a significant amount of collateral.
- Sizeable loan amounts
- Lowest rates in the financing market
- Long-term repayment schedule
- Not easily accessible to early-stage businesses recently earning a profit
- The capability to repay debt relies heavily on reported tax returns
- Typically requires collateral
- Prolonged application and funding (over 60 days)
- A significant amount of documentation is required
Learn here if you qualify for a government business loan.
2. Online Loans as an Alternative to Banks
A couple of decades ago, if you needed a loan to buy equipment or fund your operations you needed to find time in your schedule to visit your local bank branch to request a loan. Fortunately, the internet has made things easier and trouble-free. Today, there is a wide array of online lenders who provide alternative lending to small businesses.
Online lenders have become increasingly popular. Such is the case of Camino Financial, a company that offers small business loans ranging from $5,000 to $400.000. Unlike other term loans, theirs don’t require collateral and your funds can be available in one to ten business days after submitting an online application.
- The application process is simpler
- No personal assets (e.g. home, car) is required to collateralize the loan
- Loan qualification criteria are less strict compared to conventional banks
- More businesses earning less than $1 million in sales
- Quick funding. Typically within 10 business days.
- The interest rates are higher than bank loans
- Some lenders require to be paid weekly or daily
3. Asset-Based Line of Credit
Often small businesses are not able to bridge the cash flow gap between when they pay their obligations and when their commercial customers pay them. The difference between the days you need to pay your business bills and the days it takes your customers to pay is known as a working capital funding gap. A Line of Credit (LOC) is an option to fill this gap.
LOCs are essentially credit cards collateralized by a company’s assets. The more assets you have, the larger the LOC you can get. Different from credit cards, a company can draw cash from their account and are charged interest on the outstanding balance. They also need to pay a periodic fee, typically lower than the interest rate, based on the undrawn balance of the LOC.
Unlike term loans, a business line of credit gives women business owners flexible repayment terms. Mostly, online lenders allow you to repay the balance in full to save on interest costs. Typically, the borrowing limits range from $5,000 to a whopping $150,000.
The challenge of getting a LOC is the bank application process. The process typically takes more than two months and demands a lot of a business owner’s attention in preparing the paperwork.
- Flexible repayment terms
- Most suitable to fund working capital gaps
- Long application process
- Requires business assets to secure the LOC
As their name suggests, microloans are business loans engineered towards supporting businesses earning less than $500,000 in annual sales. Hundreds of nonprofit organizations and online lenders offer microloans to qualified borrowers. The microloans range from $5,000 up to $50,000.
The annual interest ranges from 8% to 29%, and they are tailored to be repaid within 2 to 5 years. This is to help entrepreneurs not to get locked down in debts.
Getting a microloan is generally easier and quicker than getting a traditional bank loan. However, you will still be required to write a business plan.
- Accessible to businesses needing loan amounts between $5,000 and $50,000
- Suitable for informally run businesses earning less than $500,000 in annual sales
- It requires lengthy documentation
- Your past credit history can disqualify you
5. Equipment Financing
Equipment financing is tailored to help small entrepreneurs to buy business equipment. Equipment covers a broad term. It can range from baking ovens, coffee machine, and specialized machinery for production. Lenders offer to finance with the APR ranging from 8% to 25%. The APR depends on the resale value of the equipment, your credit score, and the industry you have ventured into. It’s a viable solution for start-ups.
- Predictable monthly payments
- Helps in boosting business credit
- Relatively low APR
- Equipment is a strong collateral
- Quick access to cash
- It requires high credit scores for good terms
6. Invoice Financing
In some industries (especially B2B businesses), customers may take over 30 days to pay an outstanding invoice. This can create a cash shortfall if you need to make upfront cash investments to deliver a product or service to your customer. One solution is receiving between an 80% or 90% advance on outstanding invoices. The cost of invoice financing or factoring is between 1% to 3% a month on the total invoice amount, which can get pretty expensive depending on how long you need the financing. Another consideration is, you may need to ask your clients to pay the financing company, instead of sending you a check. Depending on how to manage your customer relationship, this may be disruptive to your business. Learn here everything you need to know about factoring.
- Quick process
- Accessible to early stage or unprofitable businesses
- Could be disruptive to client relationships
- Expensive if used for over 30 days
7. Purchase Order Loans
Similar in nature to invoice financing, sales you acquire through a purchase order secure the loan. When you receive orders for products, the lender pays suppliers directly, so the manufacturer (you) can fill customer orders quickly. Once delivery is made, customers pay the lender directly. Then, the lender sends a payment to you minus fees.
- Purchase order loans are a helpful financial alternative for women-owned businesses that are newly-organized. These businesses are often low on cash and can’t pay suppliers up front.
- If customers don’t pay the lender in a timely fashion, that means the lender won’t pay you. Also, women business owners stay out of the loop from the moment an order is made to the moment the client pays, so they don’t have the chance to develop ongoing relationships with suppliers and customers.
8. Personal Loans
Women business owners need startup funding to get their businesses off the ground. Personal loans can be a viable solution since their requirements are less strict than those in traditional business loans. Personal loans are normally extended for smaller amounts up to $40,000 and are based solely on an individual’s personal finances and their credit history.
- Perfect for entrepreneurs just starting out that already have a good credit standing.
- Repayment terms are usually for less than 5 years. Interest rates vary widely averaging between 6-36 percent.
Camino Financial is a lender specialized in small business loans that now also offers personal loans powered by Lendify. If your loan application was rejected by a traditional bank, have in mind that Camino Financial has fewer requirements. Their personal loans can go up to $40,000 and build your personal credit. The payment period varies from 5 to 40 months. Click here for more information. Keep in mind: their quick process allows you to get your funds in less than 5 business days!
9. Home Equity Loan
If you have a mortgage on your home, you’ve built up equity that you can borrow against. As long as you have enough income and a good credit rating, most lenders have no problem offering this type of loan.
- Lenders don’t require a business plan, copies of tax returns, or financial statements. You make monthly payments on the loan usually at a fixed rate and term. The interest you pay annually toward repayment of the loan is usually tax deductible.
- Since your home is used as collateral for the loan, you run the risk of foreclosure if you can’t make payments.
10. Non-Profit Loans
A non-profit loan is ideal for women and other minority small business owners where funding comes from non-profit lenders within the community. A non-profit loan injects economic aid into a local community by providing capital to small business owners.
- You can acquire capital for your business up to $50,000. Lenders may also offer a secondary microloan if you need more cash.
- Lenders may or may not require collateral to secure the loan. If you don’t have a strong business plan or good credit, the lender may not approve the loan.
11. Rollover for Business Startups
If you’ve already put money away for retirement in a 401(k) and are in your 30s and 40s, pulling money out of your retirement fund (“rollover” the money) to start a new business is a viable option. Doing so is not recommended for someone about to retire.
- As long as you transfer money directly to a business account, you won’t pay an early withdrawal penalty. Also, you don’t pay interest on a ROBS.
- You could lose your retirement savings if your business fails. The lender usually charges fees on a ROBS when transferring funds from your 401(k) to your business bank account.
12. Hard Money Loans
This is a type of asset-based financing through which a borrower receives funds secured by collateral in the form of real property. Hard money loans are typically issued by private investors or corporations. You can use the money to purchase equipment and other assets you need for your small business. This type of loan is good for someone who flips houses (where the house to be flipped works as collateral) and doesn’t need long-term financing.
- Loans are available to borrowers with lower credit scores. Getting a hard money loan takes far less time than a loan from a traditional lender.
- You may be able to get a better rate at a traditional bank if your credit score is excellent. Interest rates in hard money loans are normally higher, in the 10-20 percent range. Also, if you default on the loan, investors go after the collateral in order to sell the assets to recoup losses.
Those are some of the best small business loans that women entrepreneurs can access. Additionally, there are grants exclusively available to female entrepreneurs. Below we have listed eight of these grants.
13. InnovateHER Challenge
The InnovateHER Challenge is sponsored by SBA small business loans, takes place yearly and awards three attractive grants to women entrepreneurs totaling $70,000. SBA awards aim to grant businesses that develop innovative products and services that empower and influence the lives of families and women in the industry.
Once the list of local winners gets submitted to the SBA, the SBA will be tasked to choose at least 10 finalists to participate at the National InnovateHER challenge. The finalists will then pitch the ideas, products, or services and the winners will get $40,000, $20,000, and $10,000 grants, respectively.
14. Girlboss Foundation Grant
Girlboss Foundation debuted in 2014 and has awarded over $110,000 in grants to women entrepreneurs in music, design, arts, and fashion industries. The primary objective is to support and empower female entrepreneurs by awarding them grants that range between $500 to $15,000. To get the grant, the applicants must be female and 18 years or older. The applicants should also demonstrate creativity, financial need, and business acumen.
15. Open Meadows Foundation
Women entrepreneurs have no reason not to start, boost, or expand their business. Open Meadows Foundation focuses explicitly on promoting racial/gender/economic justice in projects steered by women. The foundation grants a maximum of $3,000 to female-led activities that benefit girls and women. Open Meadows Foundation mainly focuses on start-ups and small organizations. To qualify for this grant, your project needs to have a budget that does not exceed $75,000.
16. Amber Grant
The Amber Grant debuted in 1998 in honor of Amber -a young female who perished before her entrepreneurial vision became a reality. Amber grant was tailored to support female entrepreneurs to fulfill their business dreams. The program awards a female entrepreneur a grant of $500 per month. More so, it also awards $1,000 grant to one of the winners, at the end of every year.
17. Eileen Fisher Women-Owned Business Grant
Private grants are given each year to women-owned businesses. You must demonstrate that your business is ready for growth and supports innovation, sustainability and awareness of human rights in the marketplace. The Eileen Fisher Women-Owned Business Grant will update its grant program in 2019.
18. Cartier Women’s Initiative Award
Exclusive to women entrepreneurs owning a business from 1-3 years, the Cartier Women’s Initiative Award focuses on business owners that are actively generating revenue. As of 2018, top finalists win up to $100,000 and other award winners receive $30,000. Each finalist receives personal mentoring and attends network, entrepreneur, and coaching seminars.
19. Tory Burch Foundation
Women applicants get an opportunity to present their business to influential industry leaders. You can be awarded $5,000 to be used toward business education and a one-year fellowship to contact fellow women entrepreneurs. The Tory Burch Foundation also enables fellowship winners to attend workshops and network with business experts.
20. The Walmart Foundation
Grants are available for sums between $250-$250,000 for non-profit organizations. The Walmart Foundation doesn’t discriminate on gender when offering funds but does indicate it supports women-led businesses.
To sum up
Access to finances is one of the significant challenges many small business owners face – especially women entrepreneurs. Luckily there are solutions like Camino Financial, who provide speedy and convenient small business loans to minority business owners. Their primary objective is to see small entrepreneurs rise and become giants in the business field. Apply for a loan today to find a viable solution to strengthen your financial muscles!