While women have come a long way in terms of financial freedom and gender equality in business, the gender gap still exists and women have a relatively short history of being able to participate in lending.
Until 1988, women entrepreneurs were required to have a male cosigner to take out business loans. Today, women own 49 percent of all businesses in the U.S., but women business owners only accounted for 27 percent of business loan applications in 2020. Women-owned businesses also tend to receive smaller loans than male-owned businesses, and their businesses tend to bring in less revenue overall.
This gender gap in lending can be attributed to a variety of factors. Factors include differing economic circumstances, labor market experiences, attitudes toward lending and differing treatment by lenders and financial institutions.
Despite the challenges that women entrepreneurs face in the financial marketplace, women-owned businesses are on the rise, and there are lending options out there for small women-owned businesses that may have trouble qualifying for a traditional business loan.
Fast facts: women and business loans
- Men and women today have nearly identical average FICO credit scores
- The average credit score for women business owners increased from 590 to 597 in 2020.
- 72 percent of business loan applications are submitted by men, while only 27 percent are submitted by women.
- Women-owned businesses earned $421,928 less on average than male-owned businesses in 2020.
- The average loan amount for women-owned businesses was 33 percent lower than male-owned businesses in 2020.
- The number of women-owned businesses grew 21 percent from 2014 to 2019.
- Businesses owned by women of color grew 43 percent from 2014 to 2019.
- In 2019, businesses owned by women of color accounted for 50 percent of all women-owned businesses
- Women of color accounted for only 23 percent of total revenue created by women-owned businesses in 2019.
Why it may be more difficult for women to get business loans
Women may have a harder time getting business loans than men for several reasons, including challenges in building credit, industry and investor bias. Women-owned businesses also tend to be smaller businesses since women have only recently had access to the marketplace.
Up until 2020, on average, men always had higher credit score averages than women. According to 2020 FICO data, men and women now have nearly identical average credit scores. However, men have historically dominated when it comes to creditworthiness, even when men and women shared comparable demographic characteristics.
One major roadblock for women trying to build credit and access better loan rates is the gender pay gap. According to Bureau of Labor Statistics (BLS) 2020 data, white women earn $0.82 for every $1 earned by white men. This inequity is even worse for women of …….