About Loans for Women Starting a Small Business
Women-owned businesses significantly impact the U.S. economy, especially the rate of small business growth (11 percent annually) and rate of employment growth (2 percent annually). According to the National Women's Business Council (NWBC), in 2008 approximately 10.1 million privately-held businesses in the U.S. were owned in part by women. These small businesses need infusions of capital in order to grow. This capital comes from a variety of sources, including loans, grants and venture capital.
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Loans
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A loan represents an agreement between a lender who gives money and a borrower who receives money with the intent to repay the lender. The borrower repays the funds with interest, and the lender assumes the risk that the borrower may default. Loans have few limitations on the expenditures; they may be used for start-ups, equipment, expansion, and other business financial needs. Small business loans typically come from commercial banks and other financial intermediaries, and range from $25,000 to $100,000 as of 2010. Some commercial banks specialize in loan programs for women and minority owned businesses in support of community development and local small business expansion.
Grants
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While a monetary award, a grant differs from loans in several ways. Grants are awarded for specific purposes or projects rather than being spent on general business start-up or expansion costs. Grant applications require detailed information about how funds will be used, and funding agencies have limitations on types of approved expenditures. Unlike loans, grant funds are not repaid to the granting agency unless the recipient does not fulfill the requirements of the grant proposal. Grant funding agencies fall into the non-profit and private agency sector. The NWBC advises that grants "are very rare and usually focus on helping minority women and women in economically disadvantaged communities."
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Venture Capital
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Venture capital provides funds to new start-ups or turnaround companies where there is potential for above-average return on the investment but higher risk. The venture capital company invests its own funds in the new start-up in anticipation of a percentage of the profits and ownership in the company. Venture capitalists look for fast turnaround and profits.
Funding Agencies
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Several agencies and professional organizations provide assistance to women in establishing and expanding small business operations. Some offer loans and grants, while others provide advice, guidance and education. While the federal government does not offer loans directly to business, they underwrite and encourage other agencies to provide loans for small business.
The NWBC and the Small Business Association (SBA) offer pointers to finding appropriate lending agencies and basic information about small business loans for women. The SBA created a pre-qualification program for women and minority business owners to help prepare loan application packages that are viable. SBA also offers a micro-loan program that works with nonprofit intermediary lenders to fund small loans to a maximum of $35,000. SBA processes the pre-qualification of applications, while the lender funds and services the loans.
Applying for Funding
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Each funding agency requires specific documentation and levels of creditworthiness to qualify for loans and other funding. Investigate the requirements up front before beginning the application process. In order to prove that the small business is a good risk, prepare a comprehensive business plan in advance. Know the amount of funding needed, specific expenditures, and aspects of loan repayment. Do market research about business viability and competition. Be prepared to provide collateral for the loan.
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