Women small business financing
In the modern times, borrowing of funds by women who want to start small businesses is not the uphill task that it once was. Unlike in the old days, obtaining financing has been made easy for women thanks to the many successful business ventures that are women run.
Apart from the normal loans for small businesses, special loans and other credit facilities have been created for women. Gender is not the main focus nor is great emphasis placed on security. Indeed, loan applications will mainly focus on experience, character and reliability rather than assets.
There are also business financing loans specifically created for women with young children who wish to create a business within the home. The most common ways adopted are Debt Financing and Equity Financing.
Debts
Debt Financing is simply the amount borrowed from another source to be paid back in a fixed or determinate period time. Debt financing can be short term (maximum of one year) or long term which means the repayment period is more that one year.
The advantages of using debt financing are:
- The interest on debt financing is tax allowable.
- You retain maximum control (no dilution) of your business.
However debt financing has few challenges which include:
- Too much debt will make you unattractive to potential investors who will view you as ‘high risk’; and
- They will tie your control and decision making.
Equity
Equity Financing is money acquired from the small business owners themselves or from other investors. In this type of financing the company raises money by selling common or preferred stock to individual or institutional investors in return for the money paid. Shareholders receive a holding interest in the company. Sources of equity financing include angel investors, venture capitalists, corporate venture capitalists, and corporate venture capitalists and mezzanine lenders.
Advantages of Equity Financing
- With the help of investors your business may win new attention from the lenders due to its credibility.
Challenges include:
- Loss of control as the business owner since equity investors will always want to have a hand in the day to day decision making of the business.
Normally, both mentioned financiers will look at the Debt and equity ratio of your business. This is the amount of ownership that you have as compared to your total debt.
Grants opportunities available for women business owners
If you are a woman business owner and you have many things to focus on, and especially how to expand your business, you should be aware that some funding sources specifically target business women. They include:
- Small Business Administration (Office of Women’s Business Ownership)
The SBA is helping women entrepreneurs who face obstacles in the world of business. This office inspires and encourages and also teaches women to be productive in their businesses.
This is a new fundraising organization that raises money from women for women.
- American Association of University women
It is a foundation which is one of the largest private sources of funding for graduate women in the world. It supports women at their critical stage of their careers, teachers etc.
While it is possible to imagine that women may have an easier time in getting business financing, it should also be recognized that investors need them to prove solidity in their business plans.
References
|
