Why Loans For Woman-Owned Small Businesses Are Harder To Get and How To Work Around This

Posted on April 10, 2017

Out of 58.5 million businesses in India, 8.05 million are run by female entrepreneurs, constituting around 14% of the total business establishments in India. These women-owned enterprises range from corner shops to venture-funded startups and employ over 13.48 million people.

Women have so much to juggle in life, from being a mom and wife to now a business builder. Biocon Limited famed Kiran Mazumdar Shaw, CFO and President of PepsiCo, Indra Nooyi, founder of beauty and wellness giant VLCC, Vandana Luthra, MD & CEO of India’s largest private bank ICICI Bank, Chanda Kochar and Balaji Telefilms famed Ekta Kapoor are some of the many names who are leading the way for women entrepreneurs in India.

Problems Women-Run Enterprises Face

Gender bias and stereotypes are the major challenges women owners have been facing for centuries.

It is very surprising to see that most women business owners don’t think of themselves as a CEO, but a sort of chief multi-tasker. For some reason, they feel that they should be doing everything themselves for their business. They fail to understand that the major responsibility of a CEO is to be able to step back, focusing mainly on developing business plans and utilizing other assets (employees) to drive growth.

As a result, they end up feeling overwhelmed, limiting their vision and opportunities.

Women Entrepreneurs Struggling to Raise Capital

Raising finance is indeed the main problem every woman-run enterprise faces. For any entrepreneur, getting the capital as funding is a crucial step for business development, hence success. Women, on the other hand, are more prominent victims of not receiving the business loans they require in India, facing a harder time being taken seriously first. They struggle to attract the required startup capital and ongoing funds to support their business’ growth. In a maximum number of cases, they don’t have collateral to offer for secured loans from traditional banks.

However, there is an increasing number of alternative financing options available for those seeking smaller loan amounts. Government and many banking and non-banking institutions have come up with small business loans especially for women. Even if they don’t have any asset to offer as collateral, they can opt for unsecured loans from FinTech lenders who can process the loan application in minutes, without the need for collateral.

Reasons Women’s Loan Applications are Rejected

Unfortunately, in this male dominated world, the face of most successful entrepreneurs is that of men. When thinking of great business today, owners like Mark Zuckerberg and Steve Jobs come to mind. When women owners try to push further, they often receive negative responses.

It thus becomes the responsibility of educators, the media and funders to recognize successful entrepreneurs. There is a strong need to break unfair stereotypes of the successful entrepreneurship by highlighting the great businesswomen of today.

Using Personal Funds Works Against Women

In some cases, it is less about gender bias but more about the type of businesses women choose to start, along with their approach to access credit in the beginning. There are multiple examples where women use personal funds for business financing. In fact, around 79% of enterprises run by women are self-financed, and only 4.4% have borrowed money from a financial institution or received assistance from the government.

Most women rely on leveraging their personal credit sources, avoiding potential vendor financing opportunities early on, which doesn’t allow them build a strong business credit profile. This act ultimately puts them at a disadvantage in a situation when they really need business financing in the form of a small business loan.

Way Forward

Once you have decided to become a woman entrepreneur, be ready to have a clear vision and a solid business plan right from the start. Be open to various financing ideas and never miss an opportunity to get advice from others on how to improve your current business idea. Work on creating banking relationships. To improve your financial statement, save and invest your profits.

In addition, find places where you can establish business credit accounts rather than relying on your personal credit. Women business owners need to understand the importance of effective communication being a vital part of their business.

Women can opt for FinTech based money lending, offering business loans in India that do not require any collateral, have flexible repayment options and are much better than business loans offered by traditional banks and informal moneylenders. In fact, it is an excellent source of capital for those without strong credit scores.


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