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2016 Small Business Credit Survey Report on Women-Owned Firms

Women-owned small businesses make up 20 percent of all small employer firms and are a growing segment of U.S. businesses. Is there a gender gap between them and small businesses owned by men?

Majority women-owned firms, where 51 percent or more of the business is owned by women, are an important segment of U.S. businesses.1 Since 2007, women-owned firms in the United States, both the self-employed and firms with employees ("employer firms"),2 have been growing—in number and as a share of all U.S. firms.3 As of 2015, women-owned firms totaled over one million and accounted for one-fifth of U.S. firms.4 Among women-owned employer firms, jobs and annual receipts have grown since 2012.5 Between 2007 and 2015, the share of employment by small women-owned firms increased by twenty percent, while the share of employment by all small firms declined by about four percent.6

This report uses a unique dataset to examine the experiences of women-owned small employer firms, especially as compared to their men-owned peers.7 Small employer firms have traditionally played an important role in U.S. job creation,8 and women-owned firms are an emerging share of the sec­tor. Understanding the opportunities and challenges facing this growing segment of women-owned employers can provide insight into future economic contributions of the sector overall.

Even as their numbers grow, businesses owned and/or managed by women are encountering significant performance and financial challenges and growth limits.9 Women-owned firms historically have had lower survival rates, profits, employment, and sales than businesses owned by men10 — what has been called the "entrepreneurship gender gap."11 Moreover, Kauffman Firm Survey findings from 2004 to 2006 indicate women-owned firms start with less capital than their male counterparts, and raise less debt and equity in their early years.12 This disparity can have long-term effects, since startup and growth capital are key contribu­tors to future business success.13

The Small Business Credit Survey offers insights into the sources and implications of the "entrepreneurship gender gap" by comparing women- and men-owned firms' credit risk, collateral, performance, credit applications, and success rates. Overall, the survey finds:

Majority women-owned firms with employees start small and stay small

  • Women-owned small employer firms (hereafter, "women-owned firms") report lower revenues and fewer employees than men-owned small employer firms (hereaf­ter, "men-owned firms")— at all ages and stages of development. Women-owned firms are also more likely to report profit­ability challenges at early (five years or less) and later (more than 5 years) stages of maturity.14
  • Only 22% of women-owned firms had scaled to $1 million or more in annual revenues in 2016, compared to 36% of men-owned firms.

Women-owned firms are concentrated in less capital-intensive industries

  • Women-owned firms are concentrated in industries such as education and health­care, and in professional services and real estate. These industries comprise 40% of all women-owned firms.
  • Men-owned firms, in contrast, are con­centrated in professional services and real estate and non-manufacturing goods production & associated services.

Women-owned firms are more likely to experience financial challenges and growth limits than men-owned firms

  • A higher share of women-owned firms reported profitability challenges (31% were operating at a loss, compared to 25% of men-owned firms). Women-owned firms were also more likely to report higher credit risk, with 41% identifying as medium/high credit risk compared to 33% of men-owned firms.
  • Such differences are particularly striking for early stage firms, where more than half of women-owned firms (53%) identified as medium/high credit risk, compared to 40% men-owned firms. However, among firms that have survived six or more years, the credit risk differences between women- and men-owned firms are indis­tinguishable (33% of women-owned firms are medium/high credit risk, compared to 29% of men-owned).
  • Women-owned firms are more likely to report experiencing financial challenges in the previous 12 months: 64% compared to 58% of men-owned firms.
  • While the types of financial challenges that women-owned firms experience are similar to those men face—including accessing credit, meeting operating ex­penses, and purchasing inventory—women report 10% more growth-related financial challenges than men.

Women-owned firms depend on small denomination credit and personal assets to secure financing

  • Sixty-eight percent of women-owned firms have outstanding debt, similar to men-owned firms, but women's debt hold­ings are notably smaller in size. Sixty-five percent of women-owned firms hold debt of $100,000 or less, compared to 51% of men-owned firms.
  • This pattern holds even among firms that have scaled to $1 million or more in annual revenue. Among this group of larger firms, women-owned firms hold noticeably less debt; 55% hold $250,000 or less, compared to 45% of men-owned firms.
  • Of the debt held, women are more likely than their male counterparts to hold unse­cured debt for their businesses. Seventeen percent of women used no collateral to secure their debt, compared to 10% of men. Women-owned firms were also less likely to use business assets as collateral (40% compared to 51% of men-owned firms).
  • The disparity in use, and perhaps ex­istence, of business assets holds even among higher revenue firms. Women-owned firms with $1 million or more in annual revenue were still less likely than men-owned firms to pledge business assets as collateral (56% compared to 66%), making them reliant on personal assets in order to secure capital.
  • Among credit applicants, two-thirds of women-owned firms sought $100,000 or less, compared to 49% of men-owned firms.
  • Similar to men, the majority of women-owned firms rely partly or entirely on the business owner's personal credit score to secure financing for the firm, especially at early stages. This tendency diminishes as firms mature.15

Women-owned firms applied for credit at a similar rate as men; women-owned nonap­plicants were more often discouraged from applying and less likely to say they had sufficient financing than men-owned firms

  • Forty-three percent of women-owned firms applied for credit, similar to the share of men-owned firms (46%).
  • Among nonapplicants, fewer women-owned firms reported having sufficient financing than men-owned firms (43% compared to 50%).
  • Women-owned firms also reported being discouraged—not applying for financing for fear of being turned down—at a higher rate than men: 22% compared to 15%. Among discouraged women-owned firms, nearly half flagged a low credit score as a chief obstacle, perhaps reflecting the larger share of women-owned firms that are medium/high credit risks. Men-owned firms, in contrast, were more likely to cite business performance issues (51% compared to 42%).
  • Women-owned nonapplicant firms reported similar levels of debt aversion as men-owned firms (27% compared to 25%).

Women-owned firms utilize fewer types of debt and equity than men-owned firms, relying heavily on credit cards and Small Business Administration products

  • Credit cards are a common financing tool for both women- and men-owned firms. Fifty-eight percent of women-owned and 59% of men-owned nonapplicants regularly use credit cards. Among recent credit applicants, women were more likely to apply for credit cards than men (34% compared to 28%).
  • However, women-owned firms are less likely than men-owned firms to hold a variety of debt and equity types. For example, 28% of women-owned nonap­plicants hold a loan or line of credit, compared to 34% of men-owned firms, and 8% of women-owned nonapplicants hold trade credit compared to 14% of men. Women-owned firms are also slightly less likely to use leasing or have equity investment in their firms.
  • Among firms that recently applied for credit, women-owned firms applied for business loans at a similar rate as men-owned firms, but were significantly less likely to receive financing (47% success compared to 61%). In contrast, women-owned firms were more often approved for SBA loans/lines of credit: 61% compared to 50%.
  • Women-owned firms were less likely to apply for lines of credit (36% compared to 44%), which tend to be the most afford­able and flexible credit product, but had similar levels of success as men-owned firms (64% compared to 68%).
  • Among firms with low credit risk, women-owned firms applied at similar rates for loans/lines of credit as men-owned firms.16 Women- and men-owned firms were approved at similar rates for lines of credit. However, low credit risk women-owned firms were less likely to be ap­proved for business loans than their male counterparts (68% compared to 78%).

Women-owned firms face persistent funding gaps and funding source mismatches, even when have lower credit risk

  • Sixty-four percent of women-owned firms reported a funding gap, receiving only some or none of the financing sought, compared to 56% of men-owned firms. Fewer women-owned firms received all of the funding sought than men-owned firms and more women received none. Among low credit risk firms, 48% of women-owned firms received all of the financing requested, compared to 57% of men-owned firms.17
  • Women-owned applicants were more likely to apply to large banks than small banks (49% vs. 40%), but were notably more likely to be approved at small banks than large banks (67% vs. 50%). Women-owned applicants also reported notably higher satisfaction levels at small banks (80%) than either at large banks (55%) or at online lenders (48%).

  1. Center for Women's Business Research (2009), The Economic Impact of Women-Owned Businesses in the United States. Return to 1
  2. Employer firms in this report are defined as having at least one employee in addition to the owner(s). Return to 2
  3. The largest and fastest-growing segment of women entrepreneurs is non-employers, or the self-employed. The Small Business Credit Survey collects data on both self-employed and employer firms. Future analysis will focus on self-employed women. Return to 3
  4. Based on calculations from the US Census Annual Survey of Entrepreneurs (2015). Return to 4
  5. Based on calculations from the US Census Survey of Business Owners (2012) and Annual Survey of Entrepreneurs (2014 and 2015). Return to 5
  6. Based on calculations from the US Census Survey of Business Owners (2007) and Annual Survey of Entrepreneurs (2015). Return to 6
  7. Small employer firms have between one and 499 full- or part-time employees in addition to the owner(s). 20% of small employer firms are majority women-owned, 65% are majority men-owned, and 15% are equally owned. Return to 7
  8. Bureau of Labor Statistics, Business Employment Dynamics. For 2017 Q1 job gains and losses by size of firm, see: Return to 8
  9. Premier Quantitative Consulting, Inc. for National Women's Business Council (2015), Undercapitalization as a Contributing Factor to Business Failure for Women Entrepreneurs. Coleman & Robb for National Women's Business Council (2014), Access to Capital by High-Growth Women-Owned Businesses. Return to 9
  10. Fairlie & Robb (2009), Gender Differences in Business Performance: Evidence from the Characteristics of Business Owners Survey. Return to 10
  11. New York City (2015), The State of Women Entrepreneurs in New York City: The Landscape and Opportunity. Return to 11
  12. Coleman and Robb (2009), A Comparison of New Firm Financing by Gender: Evidence from the Kauffman Firm Survey Data. Return to 12
  13. Coleman and Robb for National Women's Business Council (2014), Access to Capital by High-Growth Women-Owned Businesses. Return to 13
  14. See Appendix. Return to 14
  15. See Appendix. Return to 15
  16. See Appendix. Return to 16
  17. See Appendix. Return to 17

Suggested Citation

“2016 Small Business Credit Survey Report on Women-Owned Firms.” 2017. Small Business Credit Survey. Federal Reserve Banks.

The views expressed here are those of the authors and not necessarily those of the the Federal Reserve Banks. Data used in this report may be subject to updates or changes.