Entrepreneurs face major challenges when it comes to getting business capital funding. For women entrepreneurs, these challenges come from two sources: societal barriers (or how women are viewed in society), as well as the way women own businesses. Once entrepreneurs locate potential sources of capital, they must figure out how to combine several forms of financing. Each of these areas will require an understanding of your region’s culture and what entrepreneurs can do to successfully navigate through some of the barriers associated with finding capital.
Navigating the Landscape of Business Capital Funding
If you are looking for business capital funding for your business, you will need to take an active and proactive approach to facilitate a good balance between your immediate working or capital needs and your long-term financial health. By diversifying their financial portfolios, e.g., having both debt and equity, women-owned startups and established businesses can take advantage of the best terms available.
Before considering how to finance your business, i.e., what instruments to use, it is important to evaluate your current business stage, e.g., is it in the ideation stage or attempting to grow. Many companies provide specific programs to help close the gap in financing for women-led companies through mentorship and other forms of financial assistance.
Essential Funding Pathways for Women Entrepreneurs
Utilizing business capital funding requires entrepreneurs to assess multiple factors, including their industry, business revenue, and individual credit background, prior to selecting a financing option that meets the needs of their business and is compatible with their ability to repay funds.
1. Small Business Administration (SBA) Loans
Although SBA does not provide direct loans or funding to businesses, SBA guarantees loans made by traditional lenders, which lowers the lender’s risk associated with lending to women entrepreneurs. The most common type of SBA loan is the SBA 7(a), a flexible type of loan used by businesses for either working capital, purchasing equipment, or buying commercial real estate, or a microloan used by some start-up businesses to establish their credit rating and have lower interest rates than banks. Interest rates on these loans may also be significantly lower than those charged by many traditional financial institutions for similar types of business capital financing.
2. Grants for Women-Owned Businesses
Grants are an excellent option for women-owned businesses because they are a source of business capital funding that does not require repayment. The downside is that the competition is fierce, and many programs like the Amber Grant or several industry-specific grants are designed to help women achieve certain goals. The process for applying for business funding grants is very strict. However, the potential for a large sum of money with no debt incurred can make it very worthwhile to apply for grants. The Women’s Business Enterprise National Council (WBENC) often makes these types of opportunities available to eligible candidates.
3. Community Development Financial Institutions
Community Development Financial Institutions (CDFIs) are mission-driven organizations that provide small business capital funding to assist business owners in underserved communities, including women-owned entrepreneurs who may not qualify for the more traditional funding available through banks. These lenders also assess the overall health of your company in relation to your credit score and collateral. They also provide many small to medium-sized enterprise lending business support services, such as technical assistance, which includes reviewing your financial statements or providing operational enhancement suggestions.
4. Angel Investors & Venture Capital
Angel investors and venture capital are alternative ways to get business capital funding for high-potential companies with equity-based capital. These firms often have access to larger amounts of capital than other traditional forms. When you have access to these sources, they can provide significant financial and strategic expertise in addition to finances. Some sites that have an emphasis on providing capital exclusively to female-owned businesses are the Female Founder’s Fund or Golden Seeds.
5. Alternative and Online Lending
Businesses that require immediate access to business capital funding to manage their daily operations can access it quickly through a variety of alternative lending platforms that are digital-first. Unlike conventional banks, many alternative lenders have less strict requirements regarding time in business and/or the credit history of a business. The higher interest rates associated with these loans are often justified due to the speed and ease of the application process involved, thus making them a suitable option for short-term needs.
Essential Strategies for Achieving Success and Meeting Your Needs
In order for entrepreneurs to obtain the business capital funding they require to grow their businesses, they need to have all of the required financial documentation in order to be able to present themselves favorably to lenders.
- Keep all accounting records accurate and updated.
- Have a well-defined business purpose and target market.
- Ensure you have established and reviewed your business credit score.
- Use your professional networks as sources of information and for mentorship.
Final Words
Obtaining funds for operating or growing a business will be a continual effort involving preparation, research, and perseverance. To help you with this effort, the U.S. Small Business Administration has an extensive library of resources, like the SBA’s Office of Women’s Business Ownership, that can be utilized for obtaining debt-based capital business financing as well as multiple grant opportunities. It is important to identify what type of business capital loan you are looking for and to create a financial strategy to meet your business objectives. With the proper tools and a positive attitude, you will be able to obtain the funding needed to help your business succeed in the future.
