3 Oct 2022| O-Founders
Women Entrepreneurs Can Overcome the Funding Gap Using Crowdfunding
Women receive fewer loans of smaller amounts and at higher interest rates than men, according to Fundera’s data collection and analysis. Females are permitted to take out shorter-term loans, which are typically more costly. Women’s financing inequalities are a sort of wage inequality caused by a lack of diversity and natural prejudices among people who lend money or invest in new businesses.
As a result, more women are using crowdsourcing to raise cash for their startups and businesses. When it comes to investing and lending, only a small percentage of the population (mostly white men) participates. Still, crowdfunding backers represent a more diversified cross-section of society, including women.
Let’s start by looking at the crowdfunding and gender scenario in more detail. Women receive less traditional funding than men, according to Fundera’s research. As a working woman, you’re probably well aware of the following: Women ask for less money than males, about $35,000 less on average. When it comes to short-term loans, women-owned firms have a higher chance of getting them. The size of these loans is usually smaller, but the interest rate is greater.
Women spend an average of 13% more in interest on loans than males. This is because women have lower credit scores than men, impacting the types of loans available. Men have more extensive credit limitations due to their higher earnings, which limits their borrowing possibilities.
Women prefer to own younger enterprises, reflecting the increasing enthusiasm for female entrepreneurship while underscoring the obstacles that lie in their way of success. Traditional lenders only lend 4.4 percent of their money to women-owned businesses each year, and women, according to the Fundera study, get. The SBA, which claims to promote women’s and minority-owned businesses, offers less than half as much funding to women and minorities as it does to males.
An algorithm might look at a woman company owner’s credit history and see that she has used less credit than a recent applicant, then reject her application without considering any more significant societal issues. It’s a disaster even when it comes to humankind. The gender and racial mix of investment boards, according to SBA research, has an impact on the decisions made by such boards. Women who “pitched like a male” outperformed those who demonstrated feminine qualities, according to research. Male entrepreneurs tend to generate more investor interest than female entrepreneurs, even when their offers are comparable. If evidence indicates women are more likely than men to fail after receiving money, this makes sense. According to a College’s Global Entrepreneurship Monitor, women are more capital-efficient than males, and women-run tech companies fail lower than men-run tech companies. As a result, investing with women is preferable to investing with males. Female business owners are harmed by a lack of female representation on financial disbursement boards.
Where can female entrepreneurs get their firms funded to help them close the gap in their finances? The answer is the Small Business Administration (SBA). According to a survey conducted by PwC and The Crowdfunding Center, women outperform males on crowdfunding sites like Kickstarter when fulfilling their goals. When women entrepreneurs seek venture capital or loans, they use crowdfunding portals to communicate directly with the market, including more women. Female-led projects achieve their goals at 22%, compared to 17% for male-led initiatives.
Despite the study’s findings that women prefer to help other women since they are socially similar, crowdfunding offers more variation than traditional lenders and investment boards. Despite recent gains, the venture capital business continues to be dominated by white men. When proposing crowdfunding platforms, women are more likely than males to utilize “emotional and inclusive language.” This term, which has previously been linked to fundraising success, is popular among male and female funders. Regardless of what they’re proposing to investors, males who employ staid “business” terms in their pitches have a negative relationship with their capacity to attract money.
Feminists have learned how to express their ideas to a more receptive audience thanks to crowdfunding. What’s the point of applying for a traditional loan when you can use crowdfunding, which has fewer barriers to overcome and fewer hoops to jump through as a female entrepreneur?
It may be tempting to advise women to avoid all loans and credit in favor of crowdsourcing, but this is not the case. Compared to traditional loans and investments, crowdfunding has various advantages. Diversity (or the lack thereof) and understanding of our prejudices (or the lack thereof) are critical impediments to women obtaining financing today. As a result, it’s vital to diversify lenders and investors and raise their awareness of how biases harm women entrepreneurs, the economy, and society.
Ensure that the Consumer Financial Protection Bureau requests information on small-business lenders’ borrowers as a first step. It’s already happened with consumer loan provisions of the Dodd-Frank Act, but it shouldn’t happen with regulations that may detect discriminating trends among lenders.
More varied investment boards, such as Small Business Investment Companies (SBICs) or private lenders, and increased transparency are required. As a result, if lenders want to do business with female entrepreneurs, small business owners and women’s organizations should issue scorecards to encourage them to perform better. Traditional funding will take years to change, and it should be acknowledged.
As a result, the impact of crowdfunding platforms on business growth must be considered. Women may request significantly more cash for their efforts than they do presently to accelerate their company’s growth. It is expected that, in the future, lenders and investors will be more willing to reevaluate their positions as a result of this achievement.
Female entrepreneurs are most likely familiar with this knowledge.
These women are very aware of the injustice of small business finance, just as they are acutely aware of the inequity of earning a raise or promotion ahead of their male counterparts. Hopefully, now that we have more data than ever to show the challenges that women entrepreneurs face, we will see more action to improve how we support women-owned firms and, eventually, close the funding gap.
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