Women entrepreneurs are financially underserved — time to change that

Women entrepreneurs are financially underserved — time to change that
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Worldwide, women are less likely than men to be involved in entrepreneurship. However, this gender disparity is narrowing as more women around the globe are starting their own businesses.

In the United States, for example, the number of women-owned businesses has doubled over the last 20 years — a growth rate that is more than 2.5 times the national average. Policymakers in every region have identified women’s entrepreneurship as a key driver of innovation and economic growth. But in order to unlock the full economic potential of women entrepreneurs, we must address the financial barriers they face.

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Around the world, women struggle to finance their ventures. New data collected by the Future of Business survey, a collaboration among Facebook, the OECD and the World Bank to provide data on online small and medium enterprises (SMEs) in 42 countries, documents these gendered barriers. While 70 percent of both women-run and men-run firms report using their own personal savings to fund their businesses, women are significantly less likely to fund their business with a bank loan or venture capital.

Other studies have found that compared to men, women entrepreneurs often face tighter credit availability, deal with greater scrutiny from loan officers, can be less likely to get approved, tend to receive smaller loan amounts, and are often charged higher interest rates. The result is that women’s businesses are underfunded, limiting their growth and reducing their likelihood of success.

What explains these persistent gaps in financing? Research points to gender stereotypes. Men dominate the ranks of recognized entrepreneurs, and the association between masculinity and entrepreneurship creates obstacles for women. If entrepreneurship is thought to require traits like leadership, competitiveness and business acumen — characteristics more readily associated with men — the result can be that women are viewed as less suited for it.  

Indeed, in the eyes of capital providers, women are often seen as less credible and worthy of investment. This devaluation can be pronounced when women start businesses in traditionally women typed areas like fashion, retail or food, which the majority of women entrepreneurs do. The Future of Business finds that women entrepreneurs are most likely to operate in personal services or retail, and they’re significantly less likely to have accessed a loan than men in those sectors.

Given these hurdles, it’s not surprising women are less likely than men to ask for external funding — often because of concerns that their application will be denied and that loan officers won’t take them seriously. This creates a vicious cycle in which women either don’t seek out funding or can’t get the funding they need because their ventures are judged as low growth. And because they lack funding, they don’t have the resources they need to grow.

To address these barriers, efforts must prioritize financial literacy. On average, women have lower levels of financial knowledge than men; yet an OECD report found that officials in only 8 out of 27 countries surveyed said addressing financial literacy for women and girls was important. We also need to level the playing field through policies and processes that eliminate systemic bias in loan protocols and investing criteria.  

Women also need access to the right networks. A recent analysis found that when women entrepreneurs have one or more “startup helpers” — someone who provides information, training or advice — they are 60 percent more likely to ask for funding. But all too often, women lack access to male-dominated and influential networks.

Finally, women entrepreneurs should continue to embrace online investment platforms. Compared to traditional banking, research on crowdfunding platforms, such as Kickstarter, show that even though women have lower funding goals than men, women often have greater success in funding their projects. Women also make up an impressive 45 percent of Kickstarter’s investors, and are significantly more likely than men to invest in women-led projects.  

Whether driven by necessity or opportunity, women around the world are increasingly turning to entrepreneurship to support themselves and their families. Yet, the vast majority of them are financially underserved and undervalued. Coming out of International Women’s Day, we need to commit to actions that remove the financial barriers standing in the way of women entrepreneurs’ success. We do this by creating a more inclusive financial system that treats women-owned businesses as vital and worthy investments.

Marianne Cooper is a sociologist at the Clayman Institute for Gender Research at Stanford University, and an affiliate of the Stanford Center on Poverty and Inequality. She is the author of “Cut Adrift: Families in Insecure Times” and was the lead researcher for “Lean In” by Sheryl Sandberg. Follow her on Twitter at @coopermarianne.