Capital Access for Women

Although there has been tremendous progress during the past decade, women business owners’ use of capital – both credit and equity -- still lags behind men’s, according to a new study from the Center for Women’s Business Research underwritten by Wells Fargo. The study analyzes the key trends in business financing, capital availability, and equity capital for women business owners over the past decade.The Center for Women's Business Research has been tracking women business owners’ access to, and use of capital for more than ten years.

Access to Capital: Where We’ve Been, Where We’re Going, is the first report to review this body of research from the Center and integrate it with data from outside sources and interviews with leading advocacy, business, policy and academic experts to document the changes. “Women business owners’ access to commercial credit increased by more than two-thirds between 1996 and 2003, from 20% of women business owners using commercial credit in 1996 to 34% in 2003. This increase is even more pronounced for the larger businesses owned by women. In 2003, 56% of these businesses were using commercial credit,” said Marjorie Alfus, President of Alfus Family, LP. and chair, Center for Women’s Business Research. “This progress is due in great part to the recognition on the part of financial institutions of the market opportunity presented by the growth of women-owned businesses. But it also reflects the increased financial sophistication of women entrepreneurs.”

Private banks have increasingly recognized the viability of the women business owner market. A number of national, regional and community banks have created substantial lending initiatives resulting in a greater range of financial choices available to women entrepreneurs. “Wells Fargo recognized early on that women-owned businesses were an under-served market and established programs to provide financial products and services to facilitate their growth,” said Joy Ott, regional president Wells Fargo Bank Montana and Wells Fargo’s women’s business services national spokesperson. “We hope Wells Fargo’s latest $20 billion lending goal for women business owners sends a clear and strong message that we intend to be their partner of choice, and are 100% committed to helping them succeed personally and financially.”

The larger, faster growing women-owned firms are more likely than other firms owned by women to use credit. For example, the women-owned firms with revenues of $1 million or more are more likely to access commercial loans or lines of credit than are other women-owned firms (56% vs. 31%). However, even these larger businesses owned by women lag behind their men counterparts in using commercial credit (56% of women vs. 71% of men). Furthermore, women owners of fast-growth firms are more likely than their men counterparts to rely on business earnings as their primary funding source (72% vs. 56%).The momentum has slowed and while in 2004, the number of loans to women-owned businesses had increased to 17,680, the share of total loans remained virtually unchanged since 2000 at 22%.

The public sector also contributed to the greater availability of credit and capital for women business owners. Between 1990 and 2000, the percentage of U.S. Small Business Administration (backed) loans going to women increased from 13% to 21% and the number of loans almost quadrupled (from 2,530 to 9,216).

Venture capital is another key area of business financing where women are making strides but still lag behind their men counterparts. Women business owners are relative newcomers to the venture capital markets, yet many have experienced great success. As of 2003, clients of Springboard Enterprises, a non-profit venture organization that brings together equity investors and women-led businesses, had raised over $1.7 billion in equity capital. Despite these successes, Venture One reports that in the first three quarters of 2004 only 3.8% of venture backed companies were women-led. Similarly, the Center’s research showed that in 2003 only 4% of the women owners of businesses with revenues of $1 million or more obtained or intended to seek equity investment compared with 11% of comparable men-owned firms. One factor may be the paucity of women in decision-making positions in institutional equity firms.

Women in leadership positions are much more likely than their men counterparts to consider deals with women-owned firms (86% vs. 70%) and more likely to have made an investment (67% vs. 40%). Women are experiencing higher than average success in certain industry sectors. For instance, according to Growthink Research, in the healthcare sector, women-led companies received 55% of venture funds. Women-led firms also raised 17.5% of the total dollars invested in agricultural biotechnology, 14.2% of human resource (HR) software dollars, 14.1% of imaging technologies dollars, and 11.5% of email/messaging software dollars. When considering where women business owners have been with regard to access to capital and where they are going, a panel of experts affirmed that great progress has been made and that the future is bright. The momentum must be sustained. Their recommendations were in two categories – for the financial services industry and for women business owners:

• Banks must build relationships with women entrepreneurs not just focus on selling;

• Women business owner initiatives must permeate the entire organization at all levels and in all lines of business;

• There must be opportunities for women to move into positions of influential decision-making in banking and venture capital;

• Women business owners must position their businesses for potential growth from the very beginning; • Women business owners must be better educated about the appropriate forms of financing for each stage of business growth.

• Women business owners must network with financial decision makers.

(this article was copied and pasted from www.WomensCalendar.org )