Kirsten Curry has had three rejections in the past six months and is waiting to hear from a fourth bank. Curry, owner of Seattle-based Leading Retirement Solutions, has applied to national banks, a regional bank and a credit union. The problem is that her 8-year-old retirement advisory firm lost money last year as it invested in technology to help it expand. Although revenue has consistently risen and her company has no debt, her expenses last year were a red flag.
“Though we know we’re going to see growth, it’s not necessarily guaranteed,” Curry says.
A survey of businesses conducted this summer and released Wednesday found that 30 percent of companies owned by women were able to get bank loans during the previous three months, compared to half of all the owners surveyed. The survey conducted by researchers at Pepperdine University’s Graziadio School of Business and Management and Dun & Bradstreet Corp. questioned owners of companies with up to $100 million in annual revenue.
Only 21 percent of the women surveyed said they expected it will be easy to raise debt financing — essentially loans — in the next six months, compared to 44 percent of all companies. Fewer of those owners said they were likely to pursue a bank loan, at 67 percent compared to 75 percent of all owners.
Women were also more pessimistic about the impact on their companies of not being able to get financing — 64 percent predicted slower growth versus 44 percent of all business owners. Many women will turn to personal savings, friends and family, credit cards and other alternatives. Curry isn’t optimistic about an approval from the fourth bank, so she and her finance manager, Jaime Humphrey, are working with a referral program to link them up with other banks.
The number of U.S. businesses owned by women grew nearly 27 percent from 2007 to 2012, rising to nearly 10 million from 7.8 million, according to the most recent Census Bureau figures. The total number of businesses grew less than 2 percent.
There aren’t official tallies of lending to companies owned by women. Under federal anti-discrimination laws, banks cannot ask loan applicants about their gender, race or ethnic background. Agencies including the Federal Deposit Insurance Corp. compile statistics on small business lending but those don’t reflect gender or other demographic information or whether companies obtained loans or had their applications denied.
Banks track lending to women through their own surveys. Bank of America found this year that 11 percent of owners who are women applied for loans the past two years versus 13 percent of owners who are men. Some banks have realized they need to be more aggressive in lending to businesses owned by women; Wells Fargo set a goal of $55 billion in loans by 2020, but surpassed that number in 2016, spokesman Jim Seitz says.
The financing issues come on top of the struggles small businesses historically have had getting bank loans. It’s especially the case for the newest companies without track records showing years of rising revenue and profits — and since women have been starting companies at a high rate in the past decade, many have young businesses. They also may not have developed a long relationship with bank branch managers who might advocate for them with loan underwriters.
Academic research has also found that women who start companies have a tougher time getting loans, and that bank officers used different criteria for them. A 2014 study by professors at Northeastern University and Babson College found that women received smaller loan amounts than men whose companies had similar characteristics like past performance and number of employees.
“There is such a dominant conception in the world of finance that the successful entrepreneur is a young white guy,” says Lakshmi Balachandra, a professor of entrepreneurship at Babson and a co-author of the study.
The financial crisis of 2008 and its aftermath have also made loans harder to get. Bankers became even more wary about lending to businesses that weren’t a sure bet — not only did they have business loans go bad, they’re now under more federal scrutiny. Many community banks that catered to small companies have failed or merged into larger institutions.
Carolyn Thompson, a business owner for two decades, says she’s gotten six business loans over the years because she applied at community or regional banks.
“I learned a long time ago that as a small business owner, you can’t go to a large bank,” says Thompson, president of Merito Group, an employment consulting firm based in Vienna, Virginia. With a smaller bank, it’s easier to get to know employees who have a hand in making loan decisions.
“A sales person isn’t the same as someone who’s going to speak to the underwriter,” she says.
When Jennifer Philbrook and business partner Abbie Ellis applied for a loan this year at the national bank where they have accounts, they learned what other small business owners have — that relationship is no guarantee of a loan. They had little communication from the loan department; the rejection letter gave no reasons, and a meeting with a bank employee yielded no information.
“We pretty much gave up the entire idea of a loan,” says Philbrook, whose 3-year-old Chicago-based company Stitch Method helps educate entrepreneurs in the fashion industry.
The partners did eventually get a loan after taking part in a program aimed at helping small businesses succeed; a banker whose company was one of the sponsors worked with them and within a few weeks they got a loan.
Kate Lester’s application was rejected by the big bank where her family had eight personal accounts.
“They didn’t give us a reason,” says Lester, who owns a 6-year-old eponymous interior design firm in Hermosa Beach, California.
Lester began searching for alternatives online and found a company that arranges what’s known as peer-to-peer lending — loans from private lenders or investors. She’s already repaying the 5-year loan, which she has invested in a retail store selling home decor and design services. The loan interest is higher than what a bank would have charged, but Lester says it’s money well spent.
“After the first month of being open, the store exceeded our sales predictions,” she says.