The content of this article is provided for informational purposes only. You should always obtain independent business, tax, financial, and legal advice before making any business decision.
Employing 12.2 million workers and contributing approximately $2.7 trillion to the economy annually, women-owned companies play a vital role in our current business landscape.1
However, sourcing funding can be a tricky hurdle for any entrepreneur to overcome. Luckily, small business loans can help unlock the capital women founders need to:
When it comes to small business loans for women, there are many choices to make. Here are some funding must-knows, plus tips for getting approved for a business loan.
Not all loan types or lenders are right for all types of businesses – some may focus only on certain types of operations, startups, or established companies. That said, here are the most common types of small business loans for women.
The SBA partners with lenders to guarantee loans for small businesses, including women-owned businesses. It also operates an Office of Women's Business Ownership, which has local offices that can help with SBA grants and loans for women.
SBA-guaranteed business loan options include the 7(a)-loan program2, which offers small businesses up to $5 million in funding, and a microloan program that offers up to $50,000 in loan3 funding to small businesses seeking capital to get started or expand.
Traditional banks offer their own small business loans outside the SBA. While these loans can come with lower costs compared to other options, they often have the highest eligibility requirements, which tends to make them available primarily for established businesses.4
In addition to SBA microloans, private organizations, alternative lenders, smaller state banks, and credit unions offer microloans for women-owned businesses.
Microloans tend to offer more leniency with a required credit score because they're willing to consider alternative forms of collateral. This makes them an ideal option when searching for business loans with a lower credit score.
That said, microloans also typically come with higher interest rates. You can find a microlender in your area using the Opportunity Finance Network Community Financial Development Institution (CDFI) locator.
These types of loans let a business take out financing using collateral like their accounts receivable, machinery and equipment, inventory, and real estate. Some loans can be secured with one asset, while others allow several different asset types to be combined.
Online small business lenders typically offer the same borrowing options as traditional banks, along with asset-based financing.
In addition to offering a variety of loan types and terms, these lenders often offer fast access to business loans, with some providing funding in as little as 24-48 hours of approval.
Merchant cash advances allow business owners to receive a lump sum cash infusion in exchange for payments based on a portion of future sales.
These types of loans can make sense for a business that doesn't have the credit history to apply for a traditional loan but has the sales receipts available to prove a history of cash flow.
Some online lenders specialize in working with businesses with poor credit, especially if they can prove that they have strong finances.
Women entrepreneurs can work with online lenders like Fundbox or their local community financial development institution to access specific funding targeted toward businesses that lack access to traditional forms of financing.
Non-traditional loans, also sometimes referred to as alternative loans, involve financing provided from a non-bank lender. Sources for this type of funding can include a private lender or investor, a microlender (if the amount required is smaller), or another non-bank third party.
Non-traditional loans often differ from traditional loans in other ways – for example, they may not require credit checks or may come with more flexible repayment options.
PayPal Working Capital is one non-traditional option for small businesses who process payments with PayPal. Eligibility is primarily based on your PayPal account history – no credit check or other financial history is required – and if you’re approved, loans are funded in minutes.5
Business owners choose a share of their PayPal sales to automatically deduct as loan payments, so they can repay the loan as they get paid.6
What does it take for women business owners to improve their chances of qualifying for a small business loan? Knowing what lenders are looking for is a good start.
Some details that can influence business loan decisions for women include:
Lenders use these scores to assess the risk of lending, with a higher score reflecting a history of responsible credit management. This boosts the likelihood of loan approval.
Are you launching a startup, or have you been in business for a decade? Lenders often favor companies with a longer track record because it suggests a higher chance of continued operation and loan repayment.
Your business's annual revenues give lenders an insight into your company's financial health and potential for growth. High revenues indicate a strong market demand and operational success, which can positively influence a lender's decision.
Financial statements, including balance sheets, income statements, and cash flow statements, provide a comprehensive snapshot of your business's financial health – specifically, its profitability, operational efficiency, and stability.
Cash assets and collateral offer security to the lender in the event of a default. Providing substantial collateral or demonstrating significant cash reserves reduces the lender’s risk and can improve your chances of qualifying for a loan.
Your current level of business debt helps lenders assess your financial responsibility and capacity to take on additional debt.
Lenders review business and personal tax returns to verify your reported income and ensure compliance with tax laws. Consistent, accurate tax filings show financial responsibility and legality, which can support your loan application.
How are you planning on spending your loan? A clear, justified need for capital can strengthen your application by aligning with the lender's criteria for funding specific types of projects or expenditures.
A well-crafted business plan outlines your business goals, strategies for achieving them, market analysis, and financial projections. It also demonstrates your business acumen, planning, and potential for future success to lenders.
When comparing business lenders, pay attention to:
Before you commit to a business loan for women, consider seeking out the advice of a lending expert to see if they can recommend financing options that work for your business.
Measuring the return on investment can help you decide if getting a business loan is the right move. For example, borrowing $100,000 to develop a new product could yield a stellar ROI if that product increases your revenue by 25% annually. But borrowing money to buy equipment may not be worth it if you’ll have to replace or upgrade it before the loan is repaid.
Also, take a good look at your budget. For small and medium-sized businesses, managing cash flow is a top priority. While loans for women-owned businesses can help you manage cash flow when sales are slow or if you’re pursuing new opportunities, you don’t want it to strain your financial health when money is already tight. The goal is to get ahead with a loan, not fall behind.
Additionally, the obligation to meet regular repayment schedules, regardless of business performance, introduces a layer of financial discipline that can be both a boon and a burden. This delicate balance requires strategic planning to ensure that a loan serves as a tool for growth rather than a source of stress.
Finally, consider whether something other than a loan makes sense for funding your business. For example, you could:
Each alternative has its pros and cons. Asking your friends and family for money means you may not pay interest on what you borrow, but you may risk souring the relationship if you don't pay them back. And with venture capital funding or angel investing, you're typically giving up an ownership share in your business in exchange for funding.
Securing a small business loan can be a game-changer for women entrepreneurs looking to take their businesses to new heights. With the right approach, preparation, and understanding of what lenders are looking for, you may be able to open doors to new financial resources.
Ready to strengthen your loan eligibility? Learn more about how to build business credit.
In partnership with three expert business owners, the PayPal Bootcamp includes practical checklists and a short video loaded with tips to help take your business to the next level.
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