Do women have equal access to small business credit?

Written by Julianna Nunez on August 22, 2014 - 1:54pm

Woodstock Institute’s most recent report highlights disparities in access to small business loans in the Chicago region. Between 2008 and 2012, businesses in wealthier or predominantly white Census tracts were more likely to receive loans or credit from major financial institutions than businesses in low-income and majority-minority tracts. This creates a substantial business credit gap and allows for little room for businesses in low-income and majority-minority communities to grow. Essentially, marginalized communities become even more marginalized through unbalanced bank lending. However, there is another demographic that also struggles to get the small business loans they need: women.

In a July 2014 article, Crain’s Chicago writes that there is a large gender gap in small business loans. The article examines the national trend of small business lending, but the statistics are just as staggering as those found in Chicago. According to the article, women own 30 percent of small businesses but receive 4.4 percent of conventional small business loans dollars. On a broader level, women only received 16 percent of all small business loans and 17 percent of small business loans backed by the Small Business Administration. Part of this may be due to challenges that many women business owners face. A 2013 report by Biz2Credit writes that women business owners, in general, tend to have lower credit scores, lower annual revenue, and higher operating expenses compared to their male counterparts. As such, as the report notes, banks may find women-owned businesses to be a riskier investment.

Woodstock Institute has researched the disparate access to banking services for women in the past. A 2013 report notes that women are less likely to have home purchase mortgages originated than men. The report suggests that there needs to be further investigation into possible gender discrimination in mortgage lending. A report by the U.S. Senate Committee on Small Business and Entrepreneurship noted that women face challenges in several areas of lending and wealth creation, including: access to lending, equal access to federal contracts, and receiving relevant business training and counseling. To overcome the disparities in access to those resources, the report recommends three measures:

• Modernize and expand the Small Business Association’s Microloan Program

• Enact legislation so that women have the same access to federal contracts as other disadvantaged groups

• Reauthorize the Women Business Center program, which provides grants to nonprofits so that they can train women entrepreneurs

The report by the U.S Senate Committee on Small Business ends on a positive note by observing that, despite financial and legislative barriers, women are still making progress in the business world, with the number of women-owned businesses more than doubling between 1987 and 2013.

Correction: Previous version stated that 28 percent of businesses are owned by women. Information on the 4.4 percent figure has been rewritten to clarify it is about conventional small business loan dollars, not small business loans themselves.