By: Julie Story
Small business lending has opened up somewhat in the years following the recession, but still remains tight among large lenders. A recent analysis shows that this trend is impacting female business owners more heavily than men and may have a negative impact on economic growth.
Fox Business recently cited a report from the Center for Women's Business Research, which discovered that women are starting businesses at 1.5 times the national rate, and 10 million U.S. companies are owned by females. Further, the number of women-owned companies increased by 50 percent between 1997 and 2011. As more women open their own companies or rise in leadership, it's clear that the demand for small business banking products will increase. However, research shows that the small business loan approval rates for women-owned companies are 15 to 20 percent lower than those for male-owned applicants.
This may be the case for a number of reasons. For example, Fox notes that many women-owned companies are newer businesses, which in and of itself can make it more difficult to secure capital. New companies typically must demonstrate financial solvency, revenue growth and exemplary credit before being able to access credit. The news source also noted that many of these companies are in industries that banks are typically hesitant to fund, such as retail and beauty organizations.
Helping women business-owners obtain financing
As many larger banks are still hesitant to lend to companies, this opens up opportunities for credit unions and community banks to pick up the slack and help boost the economy. Local institutions have seen a strong upsurge in the number of retail customers and members they have acquired, but a healthy business profile is also crucial to revenue growth and sustainability. Lending to a diversified group of business clients can also leverage risk and demonstrate to potential customers that local banks and credit unions are flexible and take a personalized approach toward lending. Further, many business owners choose to open personal accounts with the same provider of their business loans, which gives local institutions more opportunities for relationship banking and cross-selling.
The number of women business-owners is likely to increase over the years, and community banks and credit unions that take part in their success may build new profitable relationships, strengthen their bottom lines and become more competitive in an evolving marketplace.