Closing the Gender Lending Gap Through Alternative Lending

Introduction

Women are increasingly making their mark in the business world, launching and growing successful enterprises. However, many female entrepreneurs still face challenges in securing the capital they need to sustain and expand their businesses. Although recent trends show a narrowing Alternative Lending Gap between male and female lending, there remains considerable work to be done. For female entrepreneurs seeking financing options, a Bank Business Loan can be a valuable resource to help bridge this gap.

Understanding the Lending Gap

What is the Alternative Lending Gap?

The “lending gap” refers to the disparity between the amount of capital and the number of loans obtained by women-led businesses compared to those led by men. Historically, women have had more difficulty getting approved for loans and, when approved, often receive less funding. This gap reflects deeper issues rooted in longstanding gender biases and structural barriers in the lending industry.

Female Entrepreneurs and Small Business Owners

Growing Presence of Women in Business

Women are starting businesses at unprecedented rates. From 1997 to 2017, women added an average of 849 new businesses to the economy daily. Women-owned businesses employ over 8.4 million people and generate $2.5 trillion in sales. Despite these successes, nearly all these businesses are classified as “small,” defined as having fewer than 500 employees.

Women-led businesses are experiencing significant growth. For example, African-American women-owned firms generated $56 billion in revenue in 2017. These businesses not only expand but also hire more employees and reach sales goals more frequently than their male counterparts. Despite these positive trends, securing business loans remains a challenge.

Historical Context: Women and Money in the U.S.

Historical Barriers

Women faced significant barriers in the U.S. banking system until recent decades. Up until the 1960s, women could not open bank accounts independently; they required a male co-owner. The Equal Credit Opportunity Act of 1974 allowed women to apply for credit cards, and it wasn’t until 1988 that women could secure small business loans without a male co-signer. These historical barriers have left women entrepreneurs at a disadvantage, affecting their access to capital.

Impact on Lending Decisions

Banks have traditionally based lending decisions on historical data, which often lacked adequate information about women borrowers due to these historical restrictions. As a result, women were often perceived as higher-risk borrowers, leading to lower loan approvals and smaller loan amounts.

The Role of Alternative Lenders

Why Alternative Lenders Matter

Alternative lenders have emerged as a crucial solution to the gender lending gap. Unlike traditional banks, Alternative Lending gap lenders have been inclusive from the start and offer a better understanding of lending and default behaviors among women. They provide more accessible and diverse lending options, which helps to bridge the gap left by traditional banking institutions.

Current State of the Lending Gap

Challenges for Women Entrepreneurs

Despite improvements, the lending gap persists. Women often receive less funding compared to men, with loans averaging 31% less than those given to male-owned businesses. Women-led start-ups also face challenges, such as shorter operational histories and industry biases, which impact their ability to secure loans from traditional banks.

Impact on Start-Ups

Female-founded start-ups face additional hurdles, including limited venture capital funding. In 2018, female founders received only 2.2% of venture capital. Gender and racial biases in investment decisions further exacerbate this issue. The lack of diversity among venture capital firms and the presence of unconscious biases contribute to the lower funding rates for female entrepreneurs.

The Importance of Closing the Lending Gap

Economic Benefits

Closing the lending gap is vital for economic growth. Women own over 11.6 million companies in the U.S. and employ nearly 9 million people. By improving access to capital for women, we can enhance economic growth, increase GDP, and support job creation. Women’s contributions to the economy, such as their significant consumer spending and business revenue growth, underscore the importance of addressing this gap.

Strategies to Address the Lending Gap

Innovative Solutions

To address the Alternative Lending gap, various initiatives have been launched. Venture capital funds like Halogen Ventures and Brilliant Ventures are specifically designed to invest in women-led businesses. Additionally, efforts to make loan applications more accessible and transparent, such as online applications, can help reduce biases and improve access.

The Role of Alternative Lending

Alternative Lending gap are well-positioned to help close the Alternative Lending gap due to their quick approval processes and willingness to work with newer businesses. Their technology and inclusive underwriting practices make them a key player in providing necessary capital to female entrepreneurs. They often offer competitive rates and lower barriers to entry compared to traditional banks.

Conclusion

Women have made significant progress in the business world, but closing the Alternative Lending gap remains a critical challenge. By leveraging alternative lending solutions and continuing to address systemic biases, we can ensure that female entrepreneurs have the access to capital they need to thrive and contribute to economic growth.