Canadian businesses owned by women contribute billions of dollars to our economy every year. The number of female-owned businesses has doubled in Canada over the past two decades. Yet women still face potential barriers when it comes to financing their operations, whether they’re looking for a start-up loan or funds to take an already viable business to the next level.
So what gives?
According to Jayne Huhtanen, director of administration for the Canadian Association of Women Executives and Entrepreneurs, a number of factors are at play. “For a variety of reasons, fewer women actually request financing,” Huhtanen said from her Toronto office. “Part of that is that they want to prove they can do it on their own. Part of it is that they don’t understand what financing is available to them. And part of it is that they’re not comfortable asking. When they go to a bank or a financial institution, they don’t feel welcomed.”
In general, women also have a tendency to start less capital-intensive businesses than men, like home-based consultancies. As such, they might ignore their business credit profile or avoid business credit altogether, relying instead on a personal line of credit, credit cards or friends and family.
Building the foundations of a strong business credit profile and wisely using that credit in a business’ early years can make it easier to access additional borrowed capital in the future.
If they don’t work to establish a business credit profile in the first year or two of their businesses, it can make it more difficult to borrow down the road as their business grows and they need money to fuel that growth. We recommend that small businesses start looking for opportunities to build their business credit right from the beginning, whether that’s through a business credit card, a loan or a line of credit at a well-known retailer, like Staples or Home Depot.
Equally important, is for entrepreneurs to make sure that the company with which they’re building credit actually reports to the business credit bureaus, like Equifax, TransUnion or Dun & Bradstreet. Otherwise, their good credit behavior isn’t visible to lenders.
Taking the next step – getting a business loan – is how a lot of entrepreneurs pay for growth once they get the first year or two behind them. In fact, borrowing to fuel growth can be a wise strategy if the business knows exactly what it needs the funds for and what the return on investment will be.
For women (or any entrepreneurs) who are serious about seeking financing, Huhtanen’s advice is to approach the lender with a solid business plan and a solid financial analysis in hand. This is particularly true for traditional lenders (some lenders don’t require a detailed business plan), but regardless of whether or not your particular lender requires a business plan, there’s no question it’s important to understand your finances and how a loan will impact your bottom line.
“The more money you’re asking for, the more robust that business plan needs to be,” Huhtanen said. “You need to at least be able to say: ‘This is who my target is. This is my value proposition. I have done some research and I believe people will buy it at this price point. Here is when I expect to be profitable.’”
She also advises entrepreneurs to describe to the potential lender their best-case scenario and their worst-case scenario for when they’ll be profitable and how they will be able to repay their loan.
“You need to show that you have done your homework and that you have confidence,” Huhtanen said.
In most cases, you also need to be prepared to wait. The journey to successfully funding a business can be a long one, depending upon where you look. Traditional lenders, like the bank, typically take longer to go through the application process than many online lenders who can give you an answer in hours or days instead of potentially weeks or months.
But for entrepreneurs needing quicker access to cash, online lenders can offer relief on a number of fronts. Because they’re online and data-driven, they are able to quickly assess the health of the small business rather than overly focusing on the credit profile of the small business owner.
From OnDeck’s perspective, a healthy business is a healthy business. You can get an answer within an hour, sometimes minutes, and you can have funds in your account within 24 hours. That’s normally less time than it takes for a bank to give you a ‘yes’ or ‘no’ answer.