For women who are starting a business, figuring out the financial side of the company can be complicated. There are fewer financial options for women entrepreneurs than there are for men due to longtime stigma, the relative newness of women owned businesses in the marketplace, and structural inequalities.
Here are a few options to get that company off the ground financially.
Bootstrapping
The first and most obvious way to finance a company is bootstrapping it. This means you don’t take out loans, you don’t seek out venture capital – you set aside cash and just get your business up and running. Bootstrapped businesses often start out small and keep their expenses low.
This can be a great way to get started as a freelance graphic designer, for example, especially if you can keep your day job in the meantime.
Loans from friends and family
Going into business with an older relative is becoming more common. The older relative invests in the business and gains passive income from it (or works during their retirement) while you mostly run the business.
This can be a great way to get started if you have a relative who is game, but it can cause tension if there are disagreements about how the business is run or money is spent.
Credit cards for new businesses
Many new businesses quickly start getting credit card offers. Depending on what you need to purchase and what kind of interest rates you can get, this may be more affordable than using your personal credit cards. And depending on how you’re running your business, this may do a better job of protecting your personal assets if your company doesn’t succeed.
Non traditional loans
Even companies owned by men can have trouble getting loans from traditional lenders. During the lending freeze during the economic downturn in the late 2010s, many alternative loan companies came into being.
Their criteria for lending money is often lower, but their interest rates may be higher than other options. Depending on who processes payments for your company, you may be able to get loan options through the company at a reduced rate.
Kickstarters
For some reason, women are more likely to have successful Kickstarters and other crowd funding campaigns than men. This could be because they set more realistic goals, do a better job of explaining their process, or simply tell more compelling stories than men.
After all, from a societal point of view, women are encouraged to be better storytellers and learn more about communicating on an emotional level. Since much of the crowd-funding process is to about telling a compelling story so that people will want to invest in a project that is generally in the earliest stages of development, it may be easier for women to do so.
Kickstarters are most well known for their tech focused projects, although plenty of other types of companies have been successful there as well. Some companies have also had success raising capital to grow or expand their business, along with just getting started.
Loans through women-focused organizations
There are some organizations which have special loan programs available to women. These programs often offer lower interest rates and don’t have as strict requirements as some other, more traditional oan programs. The frustration with them may be that, since women are opening new businesses at record levels, the loan programs are just as competitive as traditional loan options.
Traditional loans
Everyone knows this process; you take your business plan to the bank and attempt to take out a traditional loan, just like you would for any other large purchase, like a car or a mortgage. Traditional lenders, however, are notoriously cautious about offering funding to new businesses.
Details like women generally having lower credit scores and social stereotypes about women not being as good at business certainly contribute to loan approval rates. Unfortunately, this may be one of the hardest sources for women to secure funding.
Venture capital
For a long time, venture capital seemed to be mostly a man’s game, especially when all the VC firms were based out of Silicon Valley and working with the male dominated businesses in that area. Slowly, the venture capital world seems to be changing. Some companies are looking outside the narrow world of Palo Alto in order to find new, fresh businesses ideas.
Others have looked at the statistics and seen that companies with more diversity in the founders – white women, women of color, disabled entrepreneurs, veterans – are more likely to be successful over time. Some companies are headed by women who are specifically looking to fund women-owned businesses.
And remember that venture capital doesn’t have to be from a big firm. Many cities hold small scale “shark tank” style events where companies present their business plan and can win funding and local benefits for their companies.
The style of business you are starting may help to determine what kind of funding you need to raise. A freelancing business that can be run from your home office with a laptop can probably be bootstrapped; a tech business focused on developing a brand new product may require more up front funding. Whatever your plan, one of these options should help you get started.
