The number of women-owned businesses that applied for funding in 2018 increased by 13 percent, although their funding amounts went down, according to an annual study of women-owned companies by Biz2Credit, an online credit marketplace.
The study, which included 30,000 companies nationwide in over 20 industries — including retail, healthcare, hospitality, construction and professional services, among others — revealed that the average loan amount for women-owned companies was $48,341 last year. The most common type of funding was working capital for business expansion.
Additionally, the study found that while average annual revenues increased, credit scores for women business owners and the average age of women-owned companies applying for small business loans dipped.
“Small business owners were willing to take more risks in 2018 because the economy was very strong,” said Rohit Arora, Biz2Credit’s CEO, who oversaw the research. “Women business owners who might have previously held off from borrowing money for expansion or capital improvements, increased last year. Record high optimism and the strong economic tailwinds of 2018 supported the growth of small businesses.”
The firm found that the average credit score for women-owned businesses dropped from 598 in 2017 to 588 in 2018 and trailed the scores of their male counterparts (613) by 25 points.
“When we take a macro look, women are increasingly becoming entrepreneurial and are applying for loans at earlier stages of their companies’ life cycles,” added Arora, whose firm has arranged more than $2 billion in financing for small business owners in the past decade. “Their credit scores are often lower because of both the wage gap and the higher amounts of student loans that they are paying off.”
“There are some very practical actions that women can take to improve credit scores such as ensuring they are making payments on time, keeping credit utilization to 30 percent or less and limiting the number of credit inquiries, to name a few,” said Adrienne Garland of She Leads Media, an expert on women’s entrepreneurship. “With improved credit scores, women can seek larger amounts of financing, and use that as leverage to propel their businesses to even greater levels of growth and profitability to accomplish their goals and pursue their dreams.”
At the same time, average annual revenues of women-owned businesses rose from $202,491 in 2017 to $228,578 in 2018, according to Biz2Credit, which analyzed 30,000 applications from business owners through its online platform last year.
Meanwhile, businesses owned by men in 2018 generated about 7 percent more revenue ($473,157) than they did in 2017 ($444,227) and made $224,579 more revenue on average than women-owned businesses last year.
“The economy in 2018 was among the strongest on record,” said Arora. “Optimism among small business owners was the highest ever recorded and, increasingly, business owners were willing to take risks. Businesses owned by women continue to grow.”
The research found that the average funded amount for women-owned businesses ($48,341) was 31 percent less than the same for men-owned businesses ($70,329) in 2018.
“Funded amounts were lower for both men and women in 2018. This can be attributed, in part, to the high number of SBA loans granted this year. Increasingly, because of the government guarantees that come with SBA loans, banks were willing to lend money to businesses that might not otherwise qualify for traditional bank term loans,” Arora explained. “Additionally, younger businesses might be more conservative in asking for money and seem to be more carefully managing their growth.”
According the study, the top five states for applications from women-owned businesses were California (13 percent), Texas (11 percent), New York (6 percent), Georgia (6 percent) and Ohio (5 percent).
“We have seen the most funding requests coming from technology centers like Silicon Valley, Calif., Austin, Texas, and New York City, areas where the real estate markets are also booming,” Arora said.
Nearly one-in-five loan applications from women-owned businesses were in service (expect public administration), which include translation and public relations services, as well as hair salons, nail salons and cleaning firms, at 19.7 percent, followed by retail (18.2 percent). Other industries for which there were the highest percentage of loan applications were: accommodation and food services (14.3 percent), healthcare and social assistance (7.6 percent) and construction (6.4 percent).
Even though women-owned businesses are growing, they still face challenges, especially when the company is in a male-dominated industry. For instance, Maryam Zadeh, owner of the trendy HIIT BOX gym in Brooklyn, N.Y., had strong personal credit scores and a growing customer base, yet still found it challenging to secure funding.
“We’re a pioneer in Brooklyn with a boutique fitness gym,” said Zadeh. “I can get press and have a level of notoriety, but often lenders will ask me where my ‘male partner’ is.”
Zadeh, who has twice moved into larger spaces because of the growing customer base for her high intensity interval training, pointed out that, “Like any other business, we need growth capital.”
Recently, she secured a bridge loan that enabled her to finance a larger space in the Gowanus section of Brooklyn, a once gritty area that is booming. Zadeh said the solid offering of her business, her growth rate and the positive publicity she has received were helpful in securing funding.
“We’re adding to our customer base, but with that growth comes increased costs, including front desk help, salaries and other costs,” Zadeh explained. “There is always something to spend money on during a growth phase.”