SBA and Beyond: Improving Capital Access for Women Business Owners

SBA and Beyond: Improving Capital Access for Women Business Owners

May 25, 2023

When Erica and Jeff Domec decided to purchase a grocery store in her hometown of LaGrange, Ohio, they didn’t have to look far for a business role model. They were purchasing the LaGrange IGA from Erica’s mother, who bought it herself after a career in the grocery store’s meat department. Erica had worked at the store since she was a teenager.

“My parents told me that if I wanted (the store), I had to do it all to prove it,” Erica says.  So she went to work, diving into P&Ls, store business plans, and financing options, ultimately securing a U.S. Small Business Administration (SBA) loan to buy the company. Erica joined the 12 million women who own small businesses in the U.S., setting out to grow LaGrange IGA’s business and invest in her community along the way.

However, while the number of women-owned businesses continues to grow rapidly, women entrepreneurs still face challenges when it comes to obtaining funding. Fortunately, Northwest Bank and other financial institutions are working close this capital gap by ensuring that women-owned businesses understand all their financing opportunities and helping entrepreneurs like Erica find small business success. 

The gender gap in business funding

Decreased access to capital has been an ongoing challenge for women business owners. For example, while funding for female co-founded companies has been on the rise, women-founded startups accounted for just 1.9% of venture capital funding in 2022 Additionally, women small business owners are 18% less likely to get bank loans approved.

It’s important to note that these statistics don’t align with the performance of women-owned businesses. Consider that the average earnings of women-owned businesses increased by 27% in 2022. But capital is often required for such growth. Business financing is key to not just starting companies, but also ensuring their expansion and success. 

“Capital is the lifeblood of any business,” says Kara Sciarra, Northwest Bank’s Head of Business Banking Strategy & Sales Enablement. “You need capital to buy inventory and assets, and pre-pay services to create products or provide a service.”

Closing the gender funding gap is an important issue and one that’s attracted the attention of banks, government agencies, nonprofits, and more. Sciarra cited an uptick in funding education and opportunities designed to support women entrepreneurs. These include female-focused small business accelerators, incubators, and federal or state-based programs encouraging entrepreneurship.

“These solutions are helping women business owners find and access the funding they need,” Sciarra says. “Without that education and capital, we risk losing the jobs, growth, opportunity, and innovation that women-owned businesses provide.”

 

Financing for women-owned businesses

When Erica and her husband decided to buy the LaGrange IGA, their first big question was how. Working with Northwest Bank, Erica opted for a small business loan from the SBA. “The SBA loan had the most favorable terms for a business acquisition,” she says.

SBA loans are often a good choice for startup founders or first-time small business owners. They provide competitive interest rates, longer repayment periods, and ample working capital. In addition, business owners can take advantage of SBA programs designed with specific needs in mind, such as loans for business acquisitions, express loans for working capital, and micro-loans to help small businesses get started.

“SBA loans provide a great option for qualified business owners because they generally allow greater flexibility in structuring the loan,” Sciarra says. However, she notes that while SBA loans make sense in many cases, women business owners have other financing options, including:

• Traditional bank loans. These are offered through a business bank, with business owners repaying the loan amounts in monthly installments over a fixed term.
• Seller notes or seller financing. This is an alternative to bank financing, in which the sellers of a business provides the buyers with a loan for the transaction.
• Supplier credit or trade lines. Small business owners can negotiate with suppliers to receive the product or inventory and pay for it later.
• Community development loans and grants. These are state or nonprofit-based loan and grant programs, often designed to fuel economic development by supporting small businesses.

There’s no one right financing option. Instead, Sciarra says that each small business owner should work with their banking partner to find a financing solution that meets their business needs and works with their financial circumstances.

 

Guidance for growth

Starting and growing a small business is daunting for all entrepreneurs, not just women. Sciarra offered some advice on how to thrive in those first years and set your small business up for long-term financial success. Consider:

• Partnering with a bank that supports first-time business owners. Not all banks have the expertise and capability to support entrepreneurs in the early stages. Look for banks that prioritize helping small business owners, including those who are just getting their start.
• Asking for references from current business owners. The small business community in your area is a great resource for discovering which lenders support entrepreneurs. Talk with other business owners in your community to learn who they trust for loans and financial resources.
• Finding a finance partner dedicated to your growth. Seek out financial institutions that are interested in your business beyond the loan. This means finding a banking partner that understands your business vision and goals – and provides solutions to help you achieve them.

For Erica, the SBA loan provided by Northwest Bank helped her and her husband become small business owners and kept the successful grocery in the family. Now Erica is focused on making LaGrange IGA bigger and better, bringing in more local products and produce.

“We plan to continue to grow and serve our community’s grocery needs,” she says.

Interested in how Northwest Bank can help your small business? Connect with one of our business bankers today or visit Northwest Bank.com.