Business enterprises headed by women are on the rise, according to various reports such as the State of Women-Owned Businesses Report by American Express OPEN.
That report puts the growth of women-owned firms increasing by one-and-a-half times the national average between 1997 and 2015. There are now 11.3 million women-owned businesses in the United States, employing nearly nine million people and generating more than $1.6 trillion in revenues, according to American Express OPEN. WBEs have incredible power in the supplier diversity space.
Yet, if all this is true, where’s the rub?
The rub is that when it comes to access to business capital for growth, support for women-owned enterprises falls woefully short.
The Difference in Funding
Some statistics from a recent Fast Company article highlighted how dire the capital situation is for women-owned enterprises:
- Businesses with women on the executive team received just seven percent of venture funding between 2011 and 2013.
- In 2015, 11 percent of Small Business Administration (SBA) 7(a) loans went to businesses where a woman had majority ownership.
The article outlined that when men start businesses, they do so with nearly twice as much capital as women. The National Women’s Business Council (NWBC) reports that this disparity, on average, has men starting businesses with $135,000 of capital versus $75,000 for women.
The article quotes Amanda Brown, NWBC executive director, as attributing the issue of “gender bias” as a major culprit. In the world of venture capital, for instance, “people put their trust in people that look like them”—men—Brown said.
Organizations like the NWBC and the National Association of Women Business Owners (NAWBO) are fighting to bring change to the financing opportunities for women-owned enterprises (WBEs). Check out our winning resources for women-owned businesses.
Bringing Change to WBEs
NAWBO, for instance, believes that strengthened federal legislation is required in order to help women business owners overcome current barriers related to access to capital. Noting that it has been nearly 30 years since the enactment of the federal Women's Business Ownership Act that addressed the needs of women in business, including eliminating discriminatory bank lending practices, NAWBO says that much more needs to be done in order to level the playing field on access to capital in 2016.
NAWBO advocates strengthened SBA loan programs and tax incentives as two means for helping women business owners. “The SBA loan program…must continue to be aggressively funded and subsidized by the federal government. Women business owners historically have had limited access to private venture capital. Therefore, equity-based capital programs, such as the [Small Business Investment Company program], are crucial in filling that gap and need to be expanded and strengthened,” NAWBO says on its website.
A 2014 report from the U.S. Senate Committee on Small Business and Entrepreneurship, 21st Century Barriers to Women's Entrepreneurship, offered a number of recommendations for increasing capital dollars to women business owners, including expanding microloan programs and changing federal law in order to give women-owned businesses the opportunity to win sole-source federal contracts.
If you are a WBE then check out our definitive guide.
The Importance of Lower Barriers to Entry
Perhaps one way to jumpstart opportunities for access to capital for women business owners lies in recommendations in a report from University of Michigan researcher Michael Barr. He acted as part of the Hamilton Project, a forum for leading thinkers across the nation to advance innovative economic policy ideas.
In his Hamilton Project paper, Minority and Women Entrepreneurs: Building Capital, Networks, and Skills, Barr suggests designing programs to increase access to capital. Per his suggestions, these programs play into others, allowing their participants to build peer support networks, develop investment and business opportunities, while also helping entrepreneurs enhance their business skills.
Barr, noting that minority and women entrepreneurs represent a dynamic subset of business owners and a growing share of the workforce, said such programs will lower barriers to entry and growth for these businesses. “Providing assistance to entrepreneurs can potentially provide several sets of social benefits: first, to the business owners themselves, including their income and social mobility, and second, to the workers they employ,” Barr wrote.