How Women Entrepreneurs Can Secure Funding for a Startup
Women in the United States own more than 11.6 million businesses, generating $1.7 trillion in sales as of 2017. These women-owned companies employ almost 9 million people, and account for 39 percent of all privately held firms in the country according to the National Association of Women Business Owners.
American women have made tremendous strides when it comes to owning and operating their own businesses on top of incredible growth in entrepreneurship. According to a new report from SCORE, women are slightly more likely than men (47 to 44 percent) to start a new business. On top of this, statistics show that women-led companies have outgrown their male-led counterparts by double in recent years, creating over 60 percent more value for investors.
Despite these impressive numbers, women often face challenges in obtaining funding for their businesses. In 2016, only $1.46 billion out of $58 billion in funding by venture capitalists was invested in women-led companies.
Access to capital is one of the biggest obstacles for any company to overcome. At best, it can be a nuisance to a well-established company. At worst, it can be the kiss of death to a fledgling company looking to expand.
Fortunately, there are options for women entrepreneurs to secure the capital they need. These include traditional funding sources such as investors, startup accelerators, or small business loans and grants. There are also more innovative ideas such as crowdfunding and P2P personal loans.
Find an Investor or Startup Accelerator
Find an Investor or Startup Accelerator
For entrepreneurs, finding a willing investor or startup accelerator is a great way to get your idea funded. A number of investors and startup accelerators are specifically looking to find female business leaders; the Women’s Startup Lab is just one example.
There are more advantages to working with an investor or startup accelerator than securing capital. You also get the benefit of expert advice and support. Many investors and startup accelerators work with their companies during the initial stages to turn a venture into a success.
However, these opportunities are incredibly competitive, and funding is generally limited to businesses with a high potential for growth and profit. As a rule, investors expect to make a return on their investment, so if your company will only show modest returns, the likelihood of being picked out of the group is lower. However, if you have the idea of the century, then you can expect to get a few call backs.
Look for Small Business Grants
Another potential option for women entrepreneurs is a small business grant. These are particularly attractive for two reasons. First, this source of funding does not need to be paid back. Second, some grants are targeted towards women in business, increasing the chances of qualifying for a grant. There are a number of grants offered by the government (both state and federal) as well as by private organizations and companies.
However, funding via small business grants is relatively limited. Many of these grants are tailored to specific industries, and it can be difficult to secure a grant if the industry is competitive. Despite this, there are numerous opportunities out there, and doing the research is the first place to start if you want to secure one of these opportunities.
In the era of connectivity, crowdfunding is an interesting way to secure capital for a business. The way it works is relatively simple.
There are platforms such as Kickstarter that allow entrepreneurs to post business ideas, and a number individual investors have the opportunity to contribute.
There are a couple of advantages to crowdfunding. You can garner support for your product before you have even begun production.
It’s a way to get a popular or innovative idea out to the public which could equate to free advertising on top of the money raised.
Of course, there are distinct disadvantages to this method. It can be incredibly difficult to successfully crowdfund. You are banking on the interest of the public, and if you don’t have any groundwork laid out, then your chances of success are low.
Think about Taking Out a Small Business Loan
If your startup business idea is not a great fit for investors, and you need more funding than grants can provide, a small business loan might be your best choice for securing the capital you need to get your business off the ground. For female entrepreneurs, both the Small Business Administration and private banks offer loans geared towards women business owners.
The government Small Business Administration’s (SBA) loan program offers funding for women-owned businesses. This can make it easier for female entrepreneurs to obtain small business loans at an affordable rate. The SBA also provides education and resources for new business owners.
Private banks also offer small business loans to individuals, including loans specifically geared towards women business owners. These loans can be a solution to fledgling business owners in need of capital, and the often come with three- to five-year repayment terms.
Keep in mind that small business loans have strict credit and eligibility requirements for approval. In addition, these loans can be expensive because they need to be repaid with interest. These factors should be weighed against taking out loan to fund your startup.
Consider a P2P Personal Loan
Finally, another option is a peer-to-peer (or P2P) personal loan. A P2P loan works in a similar way to crowdfunding. Individual investors have the option to invest in loans on a platform that is moderated by a lender. The P2P aspect often allows riskier borrowers to gain approval which makes this an option to some aspiring entrepreneurs with lower credit. The big difference between this route and crowdfunding is that you’re taking out a loan in your name; you’ll be on the hook for installment debt while growing your business.
Keep in mind that this might be better served as an act of last resort. There are plenty of limitations to a P2P personal loan. Despite coming from a peer investor platform, personal loans are still characterized by high interest rates, especially when compared to small business loan options. Additionally, there are serious limitations on maximum funding limits. Most personal loan lenders only offer between $30,000 and $50,000, and some lenders may offer up to $100,000.
While securing funding for a startup as a female entrepreneur can be challenging, it is doable. If you are committed to thinking outside of the box and exploring a number of alternatives for obtaining capital, your dreams of owning a business can come true.
By Andrew from LendEDU – he works in a small business setting and has learned all about how important access to capital is. Check out the blog if you’d like to learn more about small businesses in general.