Types of Business Loans for Women
Small business loans for women typically fall into one of four categories:
The best option for your business depends on your business’s financial profile, your credit rating, your financing needs, and your business goals.
1. SBA Loans for Women
If you are a small business owner, you may be able to qualify for an SBA loan, regardless of your gender. Although the SBA doesn’t have any programs to help guarantee business loans solely for women, their programs often improve the odds of women-owned businesses being approved for a loan. According to the SBA, SBA loans are three to five times more likely to go to women than business loans not backed by the SBA.
Whether your business needs working capital, growth financing, debt consolidation, or emergency funding, the SBA has numerous programs that may be a perfect fit.
Types of SBA Loans for Women
Although the Small Business Administration does not offer programs solely dedicated to women, they often improve the odds of a women-owned business being approved for a loan. According to the SBA, SBA loans are three to five times more likely to be given to women-owned businesses than business loans not backed by the SBA. Some appealing funding options include:
- SBA 7(a) loans are the SBA’s primary program for financial assistance to small businesses and come in multiple shapes and sizes, including traditional 7(a) loans, 7(a) small loans, working capital, and other categories.
- SBA microloans provide up to $50,000 to help startups and newly established businesses expand, along with business-based training and technical assistance.
- SBA debt consolidation loans allow you to refinance debt at affordable rates over longer periods of time.
- SBA disaster loans provide relief in the case of natural disasters.
How SBA Loans Work
SBA-guaranteed loans are provided by private lenders and are guaranteed up to 80 percent by the SBA, which helps reduce the lender’s risk and allows them to provide financing that’s otherwise unavailable at reasonable terms. SBA disaster loans, on the other hand, are provided directly by the SBA and can be used to cover normal operating expenses, continuation to health care benefits, rent, utilities, and fixed debt payments for businesses affected by natural disasters like hurricanes, floods, or pandemics.
Requirements of SBA Loans for Women
SBA loans have more stringent requirements than other financing options. In general, to qualify for an SBA loan program you must be a U.S citizen or legal permanent resident. Additionally, your business must be in operation for at least two years and may not have any bankruptcies or foreclosures in the last 3 years, or any outstanding tax liens. However, the qualifying criteria may be elevated depending on your specific lender or loan program.
Depending on the financing program, your business must have fewer than 500 employees and less than $7.5 million in revenue on average each year for the past three years. For many products, your personal credit score must be at least 620, your net income must be under $5 million (after taxes and not counting carry-over losses), and your tangible net worth must be less than $15 million. You must also show you’re investing your own time and money into the business, having “invested equity.”
Benefits of SBA Loans for Women
While SBA loans have longer approval timelines and are typically more difficult to qualify for than other financing options, they offer lower interest rates and favorable terms.
Remarkably, businesses who only need a fairly small amount of money often have a hard time getting approved for a traditional business loan because they aren’t looking for enough money for the lender to see the deal as being profitable for them. But since businesses often only need small amounts of money, many institutions and organizations have started offering microloans to help fill the gap. Many organizations that offer microloans have programs geared toward female entrepreneurs. Unlike many other types of business loans, microloans can often be used for funding startups.
The SBA also has a microloan program that is also very accessible to women, with some of their approved intermediaries being organizations that are aimed at helping women business owners. During the 2011 fiscal year, 54% of all microloans made through the SBA’s program went to businesses that were either fully or mostly owned by women.
Traditional business loans from banks aren’t the only way for businesses to get the money they need. Many other lenders offer different types of loans that don’t involve the extensive paperwork, long approval times, and strict requirements that come along with traditional loans. Merchant cash advances and invoice financing are two popular types of alternative loans that make it possible for businesses get the help they need, even when banks say no. These types of loans are generally given in smaller amounts and are best for handling short-term needs.
One way to raise money for a business without going through a bank is by seeking equity financing. Rather than taking out a loan and taking on debt to help their businesses get started, many business owners choose to find people to invest in their company. Women investors are very often more inclined to get involved with a business that is run by another woman. If the investor has experience working in your industry, their experience and advice could be extremely valuable to have on your side.
Grants are highly sought after by many business owners since they are a way to get money without having to pay anything back. The reality is that grants can be hard to find, are very competitive, have very strict requirements, and applicants may be required to match funds for the grant. First of all, be aware that the federal government does not give away money to start a new commercial business or expand an existing one, but they do offer grants for nonprofit or non-commercial organizations. However, they do give funds to state and local governments, which may potentially use that money for grants to help small business owners. Some private organizations also offer business grants specifically for women.
Applying for Business Loans for Women
The process of applying for a loan will vary depending on which type of loan you’re interested in. Alternative lending can be fast and easy to apply for while an SBA loan or a grant can be very time-consuming. At a minimum, you will probably be expected to supply the following things regardless of which type of loan you’re considering:
- Past bank statements and business tax returns
- A copy of your business license/certification
- Your resume and resumes for any partners/essential employees
- A copy of your driver’s license/other official government-issued identification
- P&L statements
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