Around one in five small businesses are now owned by women, but according to the New York and Kansas City Federal Reserves, about 47% of women-run businesses that applied for financing were accepted, compared to 61% of businesses run by men. Despite that, female entrepreneurs are continuing to explore debt financing and are doing so at a growing pace. Biz2Credit found that in 2016, there was a 2% increase in the number of women applying for small-business loans. To address this growing demand, our team analyzed more than 50 online and traditional lenders to come up with the best small-business loans for women.
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If you don't think that debt financing is right for your business, we've also compiled a list of the best small-business grants for women.
Best Online Term Loans
Given how ubiquitous banks and credit unions are, most small-business owners immediately turn to traditional lenders for loans. However, traditional lenders tend to be the most selective. Traditional lenders tend to emphasize cash reserves and personal credit scores in their qualification process, and these are areas in which many small-business owners may not necessary be strongest in. Instead, we recommend you apply for a term loan from an online lender, which can be more expensive but easier to qualify for. Term loans are best used for large purchases, where the borrower has the financial breathing room to spread out a large payment over the course of several years.
Best Business Lines of Credit
Business lines of credit are the second-most popular form of small-business financing and are a great option for female entrepreneurs looking for the most flexibility with their capital. These lines of credit are revolving, which means that once a balance is paid off, your credit limit is replenished and available for you to draw from again. Most lines of credit will be smaller than other forms of financing, but they don't incur any fees until they're utilized.
Best Business Credit Card
Because many women-owned businesses haven't been able to secure loans, they've often turned to personal or business credit cards. We don't recommend these for large purchases where you'd likely carry a balance because of the high annual percentage rates (APRs). Instead, we recommend you use business credit cards for small daily purchases. Business credit cards offer liquidity and often come equipped with unique perks like price protection, rewards programs and more. We highlighted a few below, but you can see all our business credit card recommendations here..
Best Invoice Factoring
Invoice factoring should only be an option for women-owned businesses that need capital faster than their invoices are being paid and cannot qualify for term loans or lines of credit from traditional lenders or online lenders. This option allows for businesses to transfer ownership of their unpaid invoices to lenders in exchange for a discount. In return, borrowers are given cash upfront (usually 85% or so). We only recommend this as a last resort measure because while invoice factoring may be easier to qualify for than term loans or lines of credit, there are usually very high fees and rates.
Best Merchant Cash Advance
Women-owned businesses might also consider merchant cash advance (MCA) as a financing option, which is when lenders provide funds to small-business owners in exchange for a percentage of the business's daily income. We recommend that MCA's also only be used as last resort options because of high expenses.
Best Micro and Personal Loans
Many women may find that they don't necessarily need $100,000 or even $50,000 to accomplish their immediate goals. If that's the case, we recommend considering micro or personal loans. Businesses owners should be aware that rates tend to be higher on these loans compared to others, with the exception of SBA microloans.
Best Banks for Small-Business Loans
As mentioned before, traditional lenders like banks tend to be the most difficult to qualify for. If your business is in a strong enough state to qualify for a competitive bank loan, we fully recommend you do so. However, we recommend banks that are most closely tied to Small Business Administration (SBA) loans because these are, most often, the most competitive loans you'll find in the market. Because these loans are sponsored and guaranteed by the government, banks will charge lower rates for these loans compared to other loans.
SBA Loans Issued
Average SBA loan amount
|The Huntington National Bank||4,065||$200,000|
|JPMorgan Chase Bank||3,298||$224,246|
|Live Oak Banking Co.||1,055||$1,331,838|
|Newtek Small Business Finance||525||$772,133|
Unique Challenges Women Face in Small-Business Financing
Women have redefined their role in the small-business world over recent years. In fact, the 2016 State of Women Business Report found that the number of women-owned businesses has increased by over 45% since 2007. However, Biz2Credit found that the average funded amount for women was 45% lower than that of men in 2017. In other words, while women are owning more and more of their own small businesses, they're given smaller loans than men.
While it's tough to be able to pinpoint the exact reason(s) as to why this may be the case, we've outlined some of the more immediate and obvious root causes.
Lower Credit Scores
The average credit scores of women are comparatively lower than those of men. Women had an average credit score of 598 in 2017, while men had an average credit score of 618. The lower average credit scores can be a big reason for why women are receiving lower amounts of financing than men.
Personal credit scores are a major factor in determining your eligibility for small-business financing. While there may be some lenders that don't consider your personal credit, the majority of lenders, both traditional and alternative, will place a heavy emphasis on personal credit scores.
Why are credit scores lower for women? According to some reports, two of the biggest reasons are due to the income disparity between men and women and the fact that women utilize more of their credit than men. You can find tips here on how to improve your personal credit score.
Many Female Entrepreneurs Are In Industries Lenders Are Hesitant to Service
Many women-owned businesses are in the food, hospitality and retail industries—all of which have taken heavy hits in recent years. Meanwhile, areas like IT and construction, with disproportionately more male entrepreneurs, have boomed over the past few years.
If you're a woman and you'd like to capitalize on the growth exhibited in the construction sector, for example, the SBA provides incentive programs for minorities to compete. Every year, the SBA mandates that a certain percentage of government-funded contracts are awarded to minorities, including women. You'll have to certify your business as a Woman-Owned Business Enterprise (WBE) if you're in New York state or as a Disadvantaged Business Enterprise (DBE).
How to Choose the Best Small-Business Loan
Term loans, business lines of credit or business credit cards are the best financing vehicles for most women business owners. You'll find that those three will provide enough flexibility and options for your financing needs. As stated before, traditional lenders (like banks and credit unions) will be the strictest and hardest to qualify for. So, if you're worried about qualifying because you have a young business or poor personal credit, begin by searching for online lenders. If you find difficulty with online lenders as well, we recommend re-evaluating your ability to pay back any loans. Focusing on improving your credit score and cash flow might be a better bet.
If you find that you still need capital but cannot qualify for a term loan, line of credit or a business credit card, you should only then consider invoice factoring or a merchant cash advance. While they may be easier to qualify for, we recommend the strongest level of caution because of the high fees they come with.
When applying for a loan, we recommend that all business owners shop around first. Online lenders may use different types of fees and interest rates that make it hard to tell how much you'll pay back. Convert all costs into the same standard rate, like an annual percentage rate (APR), and compare loans side by side. This is why we converted everything into costs per dollar borrowed for you.
For a more in-depth comparison of the different financing options, take a look here.
Is a Small-Business Loan Right for You?
Obtaining a loan is easier than ever. Despite the lower acceptance rate compared to men, women are still applying for more and more debt financing. However, this doesn't mean that all businesses are right for debt financing.
Consider the different forms of financing first. If you decide that your business needs external capital to grow, you'll need to decide between equity or debt financing. Either decision will have pros and cons. Equity financing doesn't come with interest or repayments, but you'll lose some control over your business. Debt financing allows business owners to stay fully in control, but there are costs to be repaid on top of the loans. Compare each option side by side and decide which is right for you.
The following organizations, some of which are focused on helping women, can help you make this decision.
In order to compile a comprehensive list of the best loans for your small business, we compared different loans based on the following metrics.
- Wide range of amounts and term lengths: Since every business has different needs, loans need to be as flexible as possible. We placed a heavy emphasis on the sizes of different loans offered and we also looked to include loans that offered flexible term lengths.
- Competitive rates and fees: Online lenders can really vary in the rates and fees that they charge, and they're sometimes prone to using terms that make apples-to-apples comparisons difficult. This is why we converted all rates and fees to a standardized cost per dollar borrowed. In general, we don't recommend borrowers pay a cost per dollar borrowed over $1.60, as there are cheaper options we feel are more appropriate.
- Clear eligibility requirements: Lenders that clearly list their eligibility requirements are looked upon more favorably than those that don't. If a lender has confusing requirements that make it tough for a business to determine if they're eligible to apply or not, that's an immediate red flag.
- Lender credibility: Online lending has proven to be extremely beneficial for the small-business lending space. However, it can also be difficult to gauge a lender's reputation. We only consider lenders with positive customer reviews and have been in business for several years.
- Funding time: The speed of funding is important to businesses, and we fully recognize that. That's why we kept an eye out for lenders that either offered quick funding or are transparent about their funding speed.
- Application process: We understand how crucial and limited a small-business owner's time can be. Thus, we prioritized applications that are relatively simple to fill out.