My mother opened radiology and ultrasound in Vancouver in the 1970s. Her business flourished for over 20 years and is still going strong. When she and my father divorced, the bank called her in and said she could not be the sole owner of a home mortgage–it had previously been partially underwritten by my father. My mother was a small business-owner whose ability to pay a monthly home mortgage was being questioned. Who knows what happened when she had to acquire expensive computed tomography (CT) scanners and magnetic resonance imaging (MRI) equipment? Her financing predicaments then would make many a woman who owns a business today shake her head in recognition.
In researching this piece, I went on the Aboriginal Women’s Business Entrepreneurship Network website and clicked on their videos on how to obtain financing. They advise women to use their own personal savings to start their businesses as well as to borrow from friends and family. Bank loans, overdrafts and credit lines are, not surprisingly, a distant third option, sometimes because women lack credit histories or are discriminated against in their credit scoring. In OECD countries, only 26% of women believe they would be given access to the necessary finance to start or grow a business, against 34% of men.
Governments can help women here. The French Fonds de garantie à l’initiative des femmes (FGIF), for instance, guarantees loans of up to €45,000 for women entrepreneurs. Microfinance loans of, typically, under €25,000, are another way to get small start-up loans to women business owners.
How about higher-risk equity financing, like angel investments and venture capital? In the US, it’s estimated that only 15% of venture capital investment went to women-owned businesses in 2014, with the number plummeting to a little over 2% in 2016. This is no surprise. Studies show that women obtain much less financing than men in traditional pitch competitions. Ireland has opted to support women-led ventures by investing in them: the Competitive Start Fund for Female Entrepreneurs invests up to €50,000 in tech or manufacturing ventures run by women in exchange for an equity stake of up to 10%. Private women-run venture capital funds, like Springboard Enterprises in the US and Rising Tide Europe, are also focusing their financing on women-owned start-ups.
For women’s businesses to expand, say, internationally, hire more people or, like my mother’s clinic, invest in new, costly technology, equity financing is needed. Says Laurence Mehaighnerie, a woman, who co-founded the Paris-based venture capital firm Citizen Capital in 2008, “I sense that women entrepreneurs feel they can do more on their own and need less money, which can mean less growth and success in the end.” Changing the business environment to make banks and investors more amenable to women entrepreneurs will allow women-run businesses not just to survive, but, thrive.
References and links
Originally published on OECD Insights
Read the OECD policy brief on women entrepreneurs at www.oecd.org/cfe/smes/Policy-Brief-on-Women-s-Entrepreneurship.pdf
Read “Study: Attractive men fare best in gaining venture capital” at http://news.mit.edu/2014/study-says-attractive-men-fare-best-in-gaining-venture-capital