Small Business Financing Options for Women-Owned Businesses

Getting funding for any new business can be daunting. For women, it can be especially challenging to secure financing from investors. Women are less likely to receive funding than men, and, when we do receive funding, it’s often less than what men receive for their businesses.

I’m on a mission to change the state of funding for women-owned businesses through Female Angel Investor, and I want all women starting a business to understand their options for getting financing. If you need funding for your business, here’s what you need to know.

How to Fund a Woman-Owned Business Venture

During the initial stages of a business, founders usually rely on their personal funds and savings. While this can be a good strategy at first, eventually, your private funds are going to run out, sometimes before you have had a chance to generate revenue.

That’s why many business owners seek funding to help them grow and scale their business, generally through either debt or equity. For women-owned businesses, grants may provide another viable option for financing.

How to Finance a Woman-Owned Business Through Debt

Financing a business through debt can take several forms, including taking out a loan or getting a credit card. The main benefit of debt financing is that it’s fast—you can have cash sitting in your account within a day in some cases. If you’re in a short-term cash crunch, then taking on some debt could be a good option.

The main drawback of financing your woman-owned business through debt is that you have to pay interest on your debt, so you’ll end up owing more than your original loan or credit. You can end up getting yourself into a nasty debt cycle, which can ruin your credit score and make it difficult to get ahead.

Debt Financing for Women-Owned Businesses

Bank loans

If you have an established business, then you might be able to get a bank loan. You usually need to have been incorporated for at least two years and have a proven track record of generating revenue. Start with the bank you use for your business to see what their requirements are.

SBA loans for women and minority-owned businesses

The Small Business Association (SBA) doesn’t provide loans directly. Instead, they work with lenders to offer small business loans. They have advisors who focus on helping women-owned businesses secure loans. To qualify, you’ll need to meet specific eligibility requirements. Because of this, SBA backed loans are less risky for lenders, which can increase your chances of getting a loan.

Credit cards

Business credit cards work the same as personal credit cards as far as letting you buy items upfront and then pay the credit card company back. If you don’t pay the full amount, then you have to pay interest. Many business credit cards require a business to be established for 1 – 2 years before they will accept your application.

Credit cards are among the easier ways to get debt financing, but they come at a much higher interest rate than most loans, sometimes as much as 20 percent or even higher. If you miss your monthly payments, your credit score will plummet, making it harder to get more loans or credit in the future.

How to Finance a Woman-Owned Business Through Equity

At Female Angel Investor, I’m interested in helping women business owners get equity financing. With equity funding, you receive money from an investor. In exchange, you usually trade away a piece of your business to the investor, who becomes a partner.

You and your investor will agree on terms, including when the investor will get additional money out of your business, provided your business continues to grow and generate revenue. When you work directly with an investor, you get more than money. You also get access to a mentor who is passionate about your business and sees value in your company. Because you are both now working toward the same goal of building your business, your investor will likely want to be somewhat involved in your business operations and can help you with decision-making.

Types of Equity Financing for Women-Owned Businesses

The two most common types of small business investors areangel investors and venture capitalists. Here’s what you need to know about them.

Angel investors

Angel investors are independent accredited investors who use their own money to finance a business during the second round of funding. An angel investor can be someone in your social circle, or it can be someone you find through a network like Female Angel Investor. Angel investors are often current or former business owners who enjoy mentoring small business owners and helping them grow their business. You can learn more about female angel funding in this post.

Venture capitalists

Venture capital (VC) firms invest in businesses during the later stages of funding. VC firms are large firms of investors that invest in companies with a proven potential to grow over the long-term. VC firms invest more money than angel investors and usually don’t want to be involved in day-to-day operations. They might expect a seat on your Board of Directors.

Grants for Women-Owned Businesses

Grants are sort of like free money. You don’t need to pay them back, like a loan, and you don’t need to give up equity in your company. The main drawback is the time it takes to apply for grants, which are often extremely competitive.

You can’t get a grant to start your business, but you may be able to get one to help you pay off debt or cover some operational expenses. There are a lot of grants dedicated to assisting women-owned businesses to get financing so they can grow their businesses. However, not all companies will necessarily qualify for all grants. A lot of grants prioritize nonprofits and social entrepreneurship.

Bottom line

Financing your woman-owned business can be challenging. That’s why I’m connecting women business owners with women investors through Female Angel Investor to help women-owned businesses get the financing they need to move their businesses forward.

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