Not only are women approved for small business financing at a lower rate than men, female entrepreneurs also typically receive smaller loan amounts and worse loan terms than their male peers, new research funds.
The study from the online funding marketplace Fundera revealed that overall 32 percent of women are approved for small business loans, compared with 35 percent of men.
“While it is lamentable that approval rates for women-owned businesses are lower than for male counterparts, even if only slightly, the more alarming statistic concerns the type of financing for which women business owners are more likely to be approved,” the study’s authors wrote.
The research found that women were more likely than men to take short–term loans, which are the most expensive. Specifically, 30 percent of women, compared with just 23 percent of men, take short-term loans.
“They are structured similarly, but short-term loans have higher rates and lower eligibility standards,” the study’s authors wrote.
In addition, women are half as likely as men to be approved for loans from the Small Business Administration. The researchers said the federally backed SBA loans are almost always the most affordable type of business financing available, with average percentage rates between 6 and 10 percent. Short-term loans typically carry APRs of between 14 and 50 percent.
Women also receive smaller loan amounts than men. When broken down by different types of loans, the average amounts received by men and women are:
- SBA loan ― Men: $156,279; Women $59,857
- Medium-term loan ― Men: $107,305; Women $88,189
- Short-term loan ― Men: $43,850; Women: $28,546
- Line of credit ― Men: $25,483; Women: $16,561
- Invoice financing ― Men: $9,561; Women: $6,796
- Personal loan ― $13,357; Women: $10,000
“It is clear that women entrepreneurs get offered smaller loans across every product, from the same groups of online lenders, with no exception,” the study’s authors wrote. “Whatever the cause, this demonstrates a sizable disadvantage women face in growing their businesses with debt financing.”
While the researchers say causes of these gender gaps are difficult to pinpoint, they believe credit scores and annual revenue play some role. The study shows that men have average credit scores of 645, compared with 629 scores for women.
“Credit score is one of the most important factors, if not the single most important factor, in determining a business owner’s financing eligibility,” the study’s authors wrote.
Additionally, the research found that on average, female business owner loan applicants make 30 percent less revenue than male business owner applicants. The study discovered that about 60 percent of female entrepreneurs who applied for a loan through Fundera reported less than $250,000 in annual revenue, with less than half of male entrepreneurs reporting the same.
The researchers believe that the root of this problem might start with the gender wage gap.
“Although we cannot prove cause and effect here, it is no far stretch to connect the gender wage gap with lower credit scores, which leads to less business financing—and stunted growth in the form of lower revenue,” the study’s authors wrote.
The research was based on small business loan applications with Fundera. The data, from between February 2014 and June 2016, was comprised of more than 8,400 small business loan applicants, which included around 6,200 men and 2,200 women.