By Margot Douillet
In the United States today, 42% of all businesses are women-owned, generating a collective $1.9 trillion dollars in revenue [1]. But despite this significant contribution to the economy, female entrepreneurs often struggle to secure funding for their businesses. In 2024, 53% of women-owned businesses used personal savings as a source of funding [1]. Less than 3% of VC funding went to women-owned start-ups, and this financing gap is even larger for women of color [2]. The gender gap isn’t restricted to start-up capital either; in response to financial challenges, 50% of men-owned businesses used personal funds, compared to 62% of women-owned businesses [3]. Women tend to have a harder time securing funding, and when they do, their loans tend to be smaller. According to the Fed Small Business Report, 54% of men-owned businesses received all the funding they applied for, compared to only 44% of women-owned businesses [3]. In 2022, the average women-owned business in the U.S. received only $49,712 in loans, compared to $83,198 for their men-owned counterparts [1].
Using personal savings to start a business or bridge a gap during difficult times can have negative consequences. Utilizing an emergency savings account to fund a business is a risky bet and can put enormous pressure on your personal life. You also miss out on the networking and community-building opportunities offered by connecting with a financial partner [4].
The results of a financing gender gap in entrepreneurship has devastating consequences on the economy. Women-owned businesses tend to convert capital into more earnings. On average, women earn 78 cents for every dollar invested, compared to 31 cents earned by their male counterparts. Additional capital can have an exponential effect on a business’ ability to generate revenue. In a study of start-ups that took part in accelerator programs, those that received funding saw a 30% growth in their revenue. Research has also found that if men and women were able to participate equally as entrepreneurs, including receiving equal funding, the global GDP could rise by 3-6% [5].
What could be to blame for this gap in funding? 52% of small business owners cite a lack of time for a complex application process as a barrier to receiving funding. 46% cite a lack of information on financial resources available to them [6]. Many female entrepreneurs believe that they lack the financial acumen to navigate the funding process, and forgo it altogether. Evidence suggests female entrepreneurs are less likely to ask for funding, and to do so only if they expect the likelihood of approval to be high. Negative gender stereotypes and biases can also affect lenders’ perception of female entrepreneurs [5].
Unfortunately, the Fed Small Business Credit Survey does not collect data on nonbinary entrepreneurs, so there is little information on whether the funding gender gap extends to nonbinary-owned businesses as well. That being said, many of the biases and stereotypes that negatively affect female entrepreneurs are also felt by nonbinary entrepreneurs.
This gap in funding may be acutely felt by women of color, who represent 50% of female business owners in the U.S.[1]. While little data exists on businesses owned by women of color, 74% of entrepreneurs of color reported using personal funds in response to financial challenges in 2023, compared to only 50% of their white counterparts [3].
What can female and nonbinary entrepreneurs do to help bridge this funding gap? Learning about financial resources that are available can make the process of acquiring funding less daunting. Building a network and finding potential financial partners – especially those looking to work with female and nonbinary entrepreneurs – is also a tremendous boost. The upcoming Speed Dating “For the Money” event at The Sphere helps female and nonbinary entrepreneurs meet potential financial partners. This event will also give participants to ask experts their business financing questions.
For more information visit: https://spherenorthampton.com/event/loans-and-love-speed-dating-for-financial-knowledge/
[1] Women in Business Statistics in 2024 (Latest U.S. Data) | Ecommerce Tips. 19 Jan. 2023, https://ecommercetips.org/women-in-business/
[2] Houston, Melissa. “Why Women Get Less Than 3% Of VC Funding – And What We Can Do About It.” Forbes, https://www.forbes.com/sites/melissahouston/2024/10/22/why-women-get-less-than-3-of-vc-funding–and-what-we-can-do-about-it/
[3] “2024 Main Street Metrics: Trends over Time from the Small Business Credit Survey.” 2024. Small Business Credit Survey. Federal Reserve Banks. https://doi.org/10.55350/sbcs-20241220
[4] Advantages and Disadvantages of Using Your Own Money to Start a Business | Nibusinessinfo.Co.Uk. https://www.nibusinessinfo.co.uk/content/advantages-and-disadvantages-using-your-own-money-start-business
[5] The Funding Gap. UBS Global Wealth Management. 3 Mar. 2021. https://www.ubs.com/global/en/wealthmanagement/who-we-serve/women-empowered/insights/2021/funding-gap.html#:~:text=Therefore%2C%20investing%20in%20companies%20led,entrepreneurs’%20chances%20of%20obtaining%20funding.
[6] Swanek, Thaddeus. New Survey Shows Small Businesses’ Growing Concern about Raising Capital. 29 Mar. 2023, https://www.uschamber.com/small-business/new-survey-shows-small-businesses-growing-concern-about-raising-capital.
