Women Entrepreneurs Day: Closing the funding gap for women entrepreneurs

Author: Caron Beesley | November 19, 2018

Women are an American business powerhouse. More than 11.6 million women-owned companies generate $1.7 trillion in revenue and employ nearly nine million people, according to National Association of Women Business Owners. However, inequality and discrimination still exist. History shows that women business owners increasingly face greater obstacles than men in their quest for credit and investment security.

But what if you could eliminate systemic discrimination. Imagine how much more women could contribute? Given the rate at which women-owned businesses grow, eradicating prejudice against women could mean a trillion-dollar economic windfall.

Reality for Women Entrepreneurs

Discrimination takes many forms. As recently as the 1970s, banks were able to deny female entrepreneurs access to credit based solely on their marital status. Likewise, a woman can only get a credit card if her husband is willing to sign it.

Despite changes in legislation, discrimination is a transformative and persistent problem in the 21st century. Women business owners are still denied credit in disproportionate amounts to their peers. their male occupation.

One recent survey of tech startups revealed that 80% of founders used their own savings to launch their businesses. However, women are the most responsible borrowers in the world, paying off microloans with a 97% return rate.

Why is it so difficult for women to access credit?

There are many factors hindering the success of women-owned businesses that we discuss in our latest report: What If – Designing Fair and Equal Financial Access for Women.

For example, women feel depressed and afraid of being rejected when applying for credit. Or, their loan needs are much lower than the typical $100,000 minimum that traditional lenders offer. Furthermore, venture capital firms also favor men: only 8% of investments go to women and 1% goes to African-American women.

But perhaps most consequential is the underwriting system, which relies solely on credit scores to gauge a borrower’s financial health, based on metrics such as how much an individual earns as well as personal wealth. employees and their collateral. This is a problem for women because Gender pay gap This means they accumulate fewer assets than their male counterparts and are put at a disadvantage when applying for loans.

Where does all this lead? Data found that women start their companies with a smaller pool of capital, averaging only 77% of the capital in similar projects headed by men. Up to 64 percent are shorted early, which discourages growth and reduces revenue.

Closing the gender credit gap: women helping women

This bias in the current financial system has gone unnoticed. On a volunteer work expedition to Honduras, American businessman and author, Wendy Diamond, witness first-hand how women’s financial empowerment can transform a community. Already acutely aware of how undercapitalized and undervalued women are at home and abroad, Diamond was inspired to focus her efforts by founding Organize business women’s day (WEDO).

As an NGO, WEDO works globally to empower women and girls to be active participants in the economy. WEDO is held annually at the United Nations in New York City (this year’s date is November 19) and is broadcast live to 144 countries worldwide. This event brings together business leaders, change makers, government officials, etc. to collaborate and find solutions to empower women in business.

WEDO’s achievements are remarkable. In the past year alone, the organization has granted 500 microloans to impoverished women to start businesses and become strong leaders; has sponsored 75 students from Black Girls Code, Girls Who Code, Lalela, Rethink Academy, The Young Women Leadership School in Astoria, Yale, George Washington University, and Northeastern University; sponsor 500 Syrian refugee girls to attend high school in Jordan; educate 1000 rural women in the Philippines to be financially literate; and more.

Financial services are changing

Women are not alone in taking steps to create a full-body change. The financial services industry has been changing in a positive direction.

With the advent of data in the cloud and machine learning, trade finance companies (such as Fund box) is addressing the persistent problem of women entrepreneurs’ access to credit by expanding creditworthiness criteria beyond personal credit scores, debt-to-income ratios, and asset ownership. property and collateral.

This is especially important for women and other disadvantaged groups such as immigrants, the younger or anyone else with a thin credit record, who can often be turned down.

To date, there are some indications that Fundbox’s dynamic approach to providing access to credit has been instrumental in closing the funding gap for female entrepreneurs.

Earlier this year, Fundbox initiated an internal research project to determine if the company provides greater access to credit to female business owners when compared to traditional commercial lenders. system or not. The sample size of 35,000 customers was analyzed. This Fundbox data review reflects no clear approval gap between male and female applicants. It also shows no clear gap in the number of credits extended between male and female applicants.

We are at a crossroads

Women business owners have every right to claim fair and equal access to credit. With the lending industry at a crossroads alongside initiatives by organizations like WEDO, women also have every reason to look forward to it.

Find out how you can join and benefit from Women Entrepreneurs Day today.

Learn more about how and why Fundbox designed fair and equal financial access for women.