How easy is it to get small business loans for women? The question seems fairly straightforward. Surely, it’s a matter of going to the bank, filling out the forms, sending in a business plan, and waiting for the requisite credit checks to be completed.
Not so fast. While women own 30% of businesses in the U.S., they receive less than 5%, dollar-for-dollar, of small business loans. Why the disparity? That’s one question the U.S. Consumer Financial Protection Bureau set out to answer.
According to a study by the Institute of Government & Public Affairs, even after adjusting for factors like creditworthiness, gender has a dramatic impact on both loan approval and the size of the credit line offered to a small business owner. This is directly in contradiction with U.S. law, notably section 1071 of the Dodd-Frank Act, which requires financial institutions to collect and report information concerning credit applications by women- and minority-owned small businesses and then implement policies and practices that encourage parity between applicants of protected classes. But, as of today, no hard and fast regulation or penalty prevents this discrimination.
But change is slow, and the new presidential administration has promised sweeping reforms to new regulations. Of particular note is the administration’s “2-for-1” policy: to implement a new regulation, Congress must remove two existing regulations. Whether or not a boon to women-owned small businesses is high on the incoming administration’s list is anyone’s guess.
All hope for women is not lost, though. Other funding methods may offer preferential treatment for women entrepreneurs. Notably, Kickstarter funding data suggests that 65% of projects posted by women were funded compared to only 30% of projects posted by men. Additionally, a number of venture capital firms and angel investors are headed by women. In a startup economy where founders have their pick of the litter when it comes to investments, female entrepreneurs can gain a leg up by ignoring the traditional gatekeepers to business financing, the banks, and going straight to investors.
