Women Are Turning to Crowdfunding Because They’re Shut Out of Traditional Lending
The gender pay gap is real, pervasive, and expansive, and it occurs across almost all industries and occupations. In fact, it isn’t just about traditional employment—even small business owners seeking financing face similar issues.
Welcome to the funding gap.
According to data collected and analyzed by Fundera, female entrepreneurs receive fewer loans, of smaller amounts, and for higher interest rates than men. They get approved for shorter loans—which tend to be more expensive—more often than men as well.
It’s yet another form of the pay gap, existing in part because of the lack of diversity and inherent biases of the people and institutions that extend loans, or agree to invest in new ventures.
Instead, more women have had to turn to crowdfunding in order to obtain the funds they need to seed or grow their businesses.
Crowdfunding levels the playing field, because while investors and lenders represent a narrow slice of the population (mainly white men), crowdfunding backers are made up of a more representative cross-section of society—including, of course, women.
What is the funding gap?
Before we can understand why women fare better in crowdfunding rounds, let’s look at the state of funding and gender. Fundera broke down the individual factors that culminate in women receiving less traditional funding, and at worse rates, than men. It’ll look familiar if you’ve been paying attention to the biases and barriers women face in the workplace:
- Women ask for less money—about $35,000 less than men, on average.
- Women-owned businesses receive more short-term loans—which are typically the smallest loans, with the largest interest rates.
- Women pay higher interest rates—on average, 13% higher interest rates for the same product that men receive.
- Women have lower credit scores—this is likely due to the wage gap and affects the kind of loans women are able to access.
- Women have worse credit utilization rates—this factor, the result of men having higher credit limits due to larger incomes, also affects the loan options available.
- Women tend to own younger businesses—which, while it reflects recent excitement about female entrepreneurship, represents the barriers that stand in their way of their success.
When applying for funding using traditional lenders, women-owned businesses account for just 4.4% of all dollars lent to small businesses annually. Even from the SBA, which claims to prioritize lending to women- and minority-owned businesses, women receive 2.5 times less money than men do, according to the Fundera report.
The biases at work
The lending and finance world is increasingly driven by algorithms, which might look at a woman business owner’s application, see her lower credit utilization rate (as compared to a man who also applied recently), and deny approval without taking larger societal factors into account.
But even where humans are involved, the results aren’t pretty: Just 8% of the partners of the top 100 venture firms worldwide are women, and SBA research shows that the gender and racial makeup of investment …read more
Read more here:: allbusiness.com