In the business world, much of the focus on gaining capital revolves around working capital. In the financial world, working capital is “sexy;” venture capitalists want to help new businesses get off the ground and expand for a variety of reasons. Funding the day to day workings of a business, working capital, is a much more humdrum proposal.
Studies have shown that women business owners have less access to capital for their businesses, which may be one of the reasons that businesses owned by women have smaller footprints and smaller profits. Where can women business owners go to get the capital they may need to fund the day to day operation and expansions of their businesses?
1. Small Business Administration Loans
The SBA is a government organization dedicated to the advancement and advocacy for and with small businesses in the United States. It offers loans to many small businesses, though it generally works with those who have a proven track record of operation. That said, women often have a better chance of getting an SBA loan than a non-SBA loan from traditional lenders. This is because the SBA is actively working to remove bias from its loan process for women and minorities.
The SBA also makes “microloans,” which may be helpful when a business needs a very small amount of capital to move forward. Traditional lenders are often most interested in larger amounts for loans so that they can justify the cost of underwriting the products.
Online payment processor Paypal recently announced their acquisition of Swift Financial. Paypal has offered a working capital program to small businesses for several years, while Swift Financial has been helping businesses connect with loan products that are right for their companies for the past decade.
With the two companies joining forces, businesses may have an incredible resource at their fingertips. The acquisition will allow PayPal to offer loans to larger businesses that process payments through its platform and provide credit to companies that are not yet users of its services.
3. On-Line Loan Companies
Since the financial crisis of 2008, when most banks stopped lending any money due to various factors, a number of online loan companies have been created. While these companies can be great sources of quick financing for businesses, they often have a significantly higher interest rate than a loan from a traditional bank or a SBA product.
If companies are looking to borrow from an online company, they must be very sure that they understand the terms of the loan and the repayment guidelines. They should also make sure that they can afford the interest rate that is being charged. Moreover, female business owners should also explore emerging fintech solutions that offer flexible, data-driven lending options, bypassing traditional biases.
4. Invoice Factoring
Invoice factoring is a method by which companies sell their invoices (often past due or late payments) to a third party for a discount. If a company has old accounts that are not paying appropriately, this can be a method to gain some cash on what the business itself might term a bad investment. This must be used cautiously, however; a company is selling off assets by releasing invoices that are owed.
This can also cause frustrations with suppliers or other B2B companies. Finally, if invoices can be collected directly by the business, they are often worth more than their sell-off rates. That said, if a business needs cash quickly, this is one method to consider.
5. Personal Funds
Some women-owned businesses struggle a lot in order to get the funds they need to continue to operate their businesses. This can be especially true in the early days, before they’ve built up enough credibility to access affordable credit.
This can be a good time to draw on personal credit as well as gifts or loans from friends and family. A businesswoman may be able to get a personal credit card, use a line of credit on a home, or dip into a 401K more easily than she can access a traditional business loan. Friends and family who believe in the overall business vision may also be willing to help out.
Personal funds have their own risks, of course. Personal debt won’t be erased if a business closes or goes bankrupt. A line of credit on a home or a 401K withdrawal will still need to be repaid. Borrowing money from friends and family can be particularly fraught, especially if the repayment terms are unclear.
There are many systematic reasons that women in business often have less access to capital, both startup and working, than men in the business. This is particularly true for women who have more than one marginalization, such as women of color. While the financial world is working, in some areas, on mitigating those biases, women still need to operate their businesses. Getting working capital is possible, but it may take a little extra ingenuity. Addressing the need for additional funding is crucial, especially for women entrepreneurs who often face systemic barriers to capital, making alternative funding options like fintech and microloans increasingly vital.