2016 Small Business Credit Survey Report on Women-Owned Firms

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%).