What Women Need to Watch for When Securing a Loan

Women are out there getting it done. Starting businesses, raising funding, and taking male-dominated industries by storm. Women-owned businesses grew 114% in the United States between 1997 and 2017, nearly 2.5 times the national average. Women entrepreneurship is also steadily rising around the world. And yet, women continue to face unique challenges in securing both business, home, and personal loans, creating what many refer to as the gender lending gap.

A 2017 report from the US Senate Committee on Small Business and Entrepreneurship found that women who applied receive fewer small business loans than their male counterparts. This unequal access to funding can be a significant financial barrier to entrepreneurial success.

If securing funding for your startup or getting the mortgage for your dream home is on the horizon, pay attention to the following considerations. Arming yourself with the right information can ensure success at the bank and help you lean into brighter financial prospects.

Check Your Credit Score

It helps to know what you’re up against, so check your credit score now to avoid any unpleasant surprises during the application process. Lenders want a track record of consistent income, evidence of your ability to accumulate wealth, and assets they can count on when extending a line of credit. Your credit score helps lenders glean insight through your credit history and the percentage of available credit you currently have.

If your credit score is mediocre, you’re in good company. According to research from the US Federal Reserve, women tend to have lower credit scores, and it’s not necessarily due to a lack of financial savvy. In fact, women’s lower credit scores could derive from having fewer assets while also holding higher rates of student loan debt.

And the gender pay gap certainly doesn’t help women bridge the distance between what they earn and the debt they bear. In 2019, women are expected to make $0.98 for every dollar made by men even when holding the same job with the same qualifications. Women are also much more likely to be single parents, heading up a household with a budget already stretched thin.

Need to improve your credit score in a hurry? Some quick fixes can clean up your credit report depending on what the problem is, including those listed below.

• Set up automatic payments to avoid late fees and past-due notices.
• Pay down your debt.
• Dispute inaccuracies in your credit report.
• Consult with a credit counselor.

Working with a credit counselor can help you determine which parts of your credit score are weighing you down and where to focus first to get the best results.

Get your Paperwork in Order

Create a fantastic first impression by turning up at the lender with documentation in hand. Hopefully, your ability to dazzle them with prepared statements and a completed loan application gives the impression that you’re a financial force to be reckoned with.

The documentation you’ll be expected to provide will depend on the kind of loan for which you’re applying. In general, you can expect to produce proof of the following items:

• Tax returns
• Proof of income (W-2s, pay stubs, etc.)
• Bank statements
• Proof of ownership for assets
• Photo ID

Applying for a business loan usually requires submitting business financial records like profit and loss statements, your business license, and a clearly articulated business plan.

Network, Network, Network

Newer businesses and those without well-established credit histories tend to have more trouble securing loans from traditional lenders. Newly divorced women may face significant obstacles, especially if the spouse retained most of the marital assets under their name.

Entrepreneurs may be tired of the mantra, but it pays to make connections. Local banks and branch managers have deep roots in the community and can help smooth the way with loan underwriters. It may also be helpful to know folks in the broader business community or to join a business mentoring program. Some nonprofits like the U.S. Small Business Administration and the Association of Women’s Business Centers can be great resources and specialize in helping women entrepreneurs secure small business loans through targeted lending programs or grants.

Ask for What You Really Need

One of the most frequent mistakes women make is asking for less money than they need. Studies indicate women not only receive smaller loan amounts but also typically end up paying them back at higher interest rates. While your ability to bootstrap a business or cobble together three jobs to make ends meet shows admirable resilience, it’s counterproductive to advancing your fiscal goals.

Entering any loan application process with a clearly articulated bottom-line dollar amount is essential. But you’ll also need to be able to explain in detail why the funding is necessary and exactly how you’ll use it. And beware of being tempted by banks that offer you more than you need, especially at terms that aren’t favorable to you. Borrow exactly the amount of capital required for your venture, or you may find yourself underwater and struggling with a high debt-to-income ratio for years to come.

Consider Alternative Funding

If traditional lenders aren’t giving you traction, it’s time to look at alternative methods of funding. While term loans might be out of reach and personal loans are risky, other kinds of small business loans and grants are available to women through various avenues.

SBA Loan (Small Business Administration)

These loans, backed in part by the U.S. Small Business Administration, do have additional requirements that you won’t find on standard loans, but they come with the benefit of lower interest rates. The SBA points women entrepreneurs toward the 8(a) Business Development Program that “helps small, disadvantaged businesses compete in the marketplace.”

Open a line of credit

Lines of credit can be a good option when you need to borrow a small amount of money and can pay it back in a short amount of time. This kind of revolving credit can be helpful to establish a reputation for both new businesses and individuals with spotty credit histories. Lines of credit also have a more straightforward application threshold and less rigid requirements for approval.

Apply for a grant

Grants exist to give the disadvantaged equal access and opportunity to all sorts of things, including a college education, homeownership, and owning a business or even a farm. Grants.gov is an excellent place to start because it acts as a clearinghouse for all sorts of grants and scholarships from around the country, and you can filter for eligibility requirements that pertain to you.

Get venture capital

Otherwise known as angel investors, this kind of money seems like an urban legend, but it does exist. Usually, investors offer up financing in exchange for a slice of the business. Terms will vary depending on the venture capital firm or group you’re working with. There are a few investment groups that focus specifically on women-led businesses such as Women’s Capital Connection and Women’s Venture Fund.

Take out a microloan

Microloans may not be a one-size-fits-all solution for lifting women out of poverty. However, if you need a small infusion of cash for a project, microlending might be the answer. These small loans issued by individuals or a group of individuals are perfect for those working out of their homes, freelancers, or sole proprietors who need help to start generating some profit.

Whether you choose to pursue funding through your local credit union or lean into qualifying for an SBA loan, you can and should embrace the opportunity to invest in yourself. Increasingly, women entrepreneurs and business owners are the engines of innovation that drive our economy and transform opportunities for the next generation of leaders.

This guest post was authored by Madison Crader

Madison specializes in content related to small businesses building brand awareness and gaining access to capital to grow their business. She has a passion for helping entrepreneurs understand their financial needs and set long-term goals by sharing tips and tricks.