Women Less Likely to Receive Small Business Loan Approval

Woman-owned business
A study released this week found that women-owned businesses are less likely to receive small business loan approval.

The study by Biz2Credit found that women-owned businesses are 15 to 20 percent less likely to receive approval on a small business loan application than male-owned businesses. In addition, women comprised less than one-third of all small business loan applications on the website (29 percent).

Biz2Credit analyzed 14,000 business loan applications submitted via their website during the last six months of 2012.

Among the findings was an imbalance in revenue. Women-owned businesses average 15 percent lower annual revenue than male-owned businesses. But women-owned businesses also reported 21 percent higher operating expenses.

Rohit Arora, CEO of Biz2Credit, attributes this to the business type. He said women tend to be involved in retail operations, which generally have higher operating costs and smaller profit margins. Lending institutions review these figures and label women as higher risk businesses. This partly accounts for the lower approval ratings for small business loans.

Arora told that women are likely to own retail businesses because they require less upfront experience and formal education.

On top of differences in business models, women applicants had a lower average credit score. Women-owned businesses’ credit scores were 40 points lower than male-owned businesses, despite being very similar ages.

Arora said the lack of credit access for women stops or inhibits their ability to run their business.

“If they have less access to business loans, they have to borrow more money on their personal credit,” he said.

If women borrow on their personal credit, or if they turn to less favorable forms of borrowing with higher-interest rates, it will inhibit their business in the future because of added expenses and a possible reduction to their credit score.

Biz2Credit’s findings are consistent with two recent studies by the Kauffman Foundation and the National Small Business Association. The studies found that the majority of business start-ups used their own personal funds for the business.

If women are approved on 15 to 20 percent less loans as confirmed by Biz2Credit, this further reduces their access to capital in starting a small business. Across the board, women have a difficult time starting and maintaining their business due to a lack of business loan approval.