Small business loans for women: Where to find them and how to qualify.

May 10 2019 | PayPal Editorial Staff

When it comes to business loans, there are a lot of opportunities that women entrepreneurs may find appealing. There are loans that can help you grow your business as well as loans designed to meet day-to-day financial needs in the short term.
Being your own boss definitely has its perks – and it's why women are increasingly turning to entrepreneurship. In fact, over the next five years, an estimated 13 million women could swap out the traditional model of working for an employer to work for themselves.1

The potential upside is huge. Running a business can offer more flexibility than working a traditional nine-to-five job, making it easier to balance the dual demands of having a career and a family. Even more appealing? It can also be highly profitable. According to SCORE's The Megaphone of Main Street: Women's Entrepreneurship report, women-owned businesses generate more than $1.6 trillion in revenue annually.2

But sometimes you have to spend money to make money in business. That's where small business loans come in.
 
With small business loans, women entrepreneurs can tap into the capital they need to:
  • Launch their startup.
  • Develop new product lines.
  • Open a new location or renovate an existing one.
  • Buy essential business equipment.
  • Hire and train new staff.
  • Level up their advertising and marketing strategies.
  • Cover payroll, insurance premiums, and other day-to-day expenses.
 
If you think a loan may be just what your business needs, this guide to small business loans is a must-read.
 
Small business loans – what are the options?
A logical first question is: Where should women start looking for business loans? The good news is that there's a wealth of options for women who want to finance their small businesses.
 
1. Small Business Administration loans
While the SBA doesn't issue loans directly, it does partner with lenders to guarantee loan-funding for small businesses, including women-owned businesses. Some of the SBA business loans women should explore include:
  • 7(a) loans: The 7(a) loan program offers women and other small business owners up to $5 million in funding. As of February 2019, interest rates for 7(a) loans range from 7.75–10.25%, depending on how much you borrow.
  • Microloans: 7(a) loans can help you borrow big, but if you have a smaller capital need, a microloan could be a better fit. The SBA's microloan program offers up to $50,000 in loan funding to women and other small businesses seeking capital to get started or expand. The interest rates for microloans are generally between 8–13%.
  • Contractor funding: The 8(a) Business Development program is for smaller businesses whose owners are economically or socially disadvantaged, though it's not a loan, per se. This program, similar to the Women-Owned Small Business Federal Contracting Program, ensures that women- and minority-owned small businesses receive at least 5% of all federal contracts.
 
2. Online business loans
Online and alternative business lending is another place for women to look for small business loans. These lenders offer the same borrowing options as traditional banks (and in some cases, more), including:
  • Term loans.
  • Inventory and purchase order financing.
  • Accounts receivable financing.
  • Equipment financing.
 
Loan types and terms vary from lender to lender. PayPal, for instance, can help business owners find funding from $5,000 to $500,000, with repayment terms ranging from 13–52 weeks.
 
What's consistent with many online and alternative lenders is the speed and convenience they can offer. Depending on the lender, it's possible to get loan funding in 24–48 hours of being approved - a major plus when you have an immediate funding need.
 
3. Other microloan options
The SBA isn't the only place female entrepreneurs should look for microloans. There are also private organizations that offer microloans for women-owned businesses.
 
Loan amounts are smaller compared to what you can borrow with online business loans and repayment terms are different for every lender. Some lenders offer microloans strictly for startups, while others are open to established businesses.
 
Keep in mind: Some microlenders may limit loans to certain types of small businesses. You might be able to get a loan to open a daycare, for instance, but not to buy kitchen equipment for the food truck business you're about to take to the streets.
 
How do you qualify for a business loan?
Even though women entrepreneurs have many different choices for business loans, they may have trouble obtaining one.
 
Why? They're at a statistical disadvantage.
 
According to the SCORE report, men are more likely to qualify for business loans. Of the small business owners who applied for a loan in 2017, SCORE found that approvals for men were 38%, compared to 31% of women.3
So, what does it take for women business owners to improve their chances of qualifying for a small business loan?
 
Knowing what lenders are looking for is a good start. Things that can influence business loan decisions include:
  • Personal and business credit scores.
  • Length of time in business.
  • Annual revenues.
  • Financial statements.
  • Cash assets and collateral.
  • Business debts.
  • Business and personal tax returns.
  • Capital needs.
  • Business plan.
 
Take time to review your financials, check your credit scores, and get your paperwork organized. The lender will want to review this information, so having your documents prepared beforehand can help save time during the loan application process. The better you know what a lender expects from borrowers, the easier it becomes to find a financing option that's tailored to your situation.
 
Weigh your loan options carefully.
You know where to find small business loans for women, but it's just as important to know how to compare them. Business loans vary, just like lenders do, and the loan terms and qualification requirements can differ greatly.
 
As you research different loan options, a few things to pay attention to include:
  • Minimum and maximum loan amount offered.
  • Loan repayment terms.
  • APR range and whether the lender charges a fixed or variable rate.
  • Minimum qualification requirements for credit score, revenues, and time in business.
  • Loan fees, including origination fees or prepayment penalties.
  • Approval and funding speed.
 


Also, find out which loans require collateral and/or a personal guarantee. A personal guarantee means you're personally committing to repaying the loan, even if it's in your business's name. Signing off on a personal guarantee could increase the odds of getting a loan if the lender sees you as being less risky. But remember that you could be putting your personal assets on the line if you default on the loan for some reason.
 

Is a business loan right for you?
Measuring the return on investment can help you decide if it's the right move. For example, borrowing $100,000 to develop a new product could yield a stellar ROI if that product increases your revenues by 25% annually. But borrowing money to buy equipment may not be worth it if you're going to have to replace it or upgrade it before the loan is repaid.
 
Also, take a good look at your budget to make sure you can handle loan repayment without it being a burden on your cash flow. The goal is to get ahead with a loan, not fall behind.
 
Finally, consider whether something other than a loan makes sense for funding your business. For example, consider:
  • Bootstrapping your business from your savings.
  • Asking friends and family to help with funding.
  • Looking into business grants for women business owners, such as the Cartier Women's Initiative Award and the Amber Grant.
  • Fundraising for your business through a crowdfunding platform. iFundWomen, for example, is a crowdfunding platform focused on helping female entrepreneurs connect with funding.
  • Women-centric business accelerators and incubators, such as the Women's Startup Lab, a leading accelerator for female founders.
  • Venture capital funding or angel investing.
 
Each alternative has its pros and cons. Asking your friends and family for money means you may not pay interest on what you borrow, but, if you don't pay it back, you risk souring the relationship. And with venture capital funding or angel investing, you're typically giving up an ownership share in your business in exchange for funding.
 
If you're interested in learning more about some of these options, the National Women's Business Council offers some excellent resources on financing for women business owners.

The great thing about small business loans for women and small business funding, in general, is that you don't have to adhere to a one-size-fits-all mold. You can pick and choose what works best for your business. And if it's a loan – either from the SBA, an online lender, a microlender, or a traditional lender at a bank – doing your homework beforehand means you can approach business borrowing with confidence.
 
 1 Women in the Independent Workforce Report, FreshBooks, November 2017.
2–3 The Megaphone of Main Street: Women's Entrepreneurship, SCORE, April 2018.
 
 
The content of this article is provided for informational purposes only. You should always obtain independent business, tax, financial, and legal advice before making any business decision.