How Lending Discrimination Holds Tech Women Back

Anna Johansson

June 18, 2018

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Startups are the future of our national economy, but if you take a closer look at this growing class of businesses, women are notably absent. As a class, women own only five percent of startups and represent only seven percent of partners at venture capital firms. Mind that second number—venture firms determine where the money for new businesses goes and if women don’t have a say, we aren’t likely to be on the receiving end.

Failure to lend to women is holding the tech industry back, and that prevents everyone from benefiting from innovations. In order to level the playing field for women in tech, then we need to pursue a diversity of funding opportunities. No matter how great your ideas are, we won’t be able to change the industry without financial support.

Understanding the Lending Gap

When seeking business startup funding, women receive nearly 50% less funding than men applying for equivalent business loans—and women of color get even less. When you compare the average failed startup, a sector dominated by white men, with one started by a black woman, the latter receives just $36k in funding compared to $1.3 million for the former. Disadvantaged business enterprise (DBE) certification can help women gain entry into more financially successful industries, but otherwise, they typically opt for fields with higher operating costs and with lower credit scores.

One way women bridge this lending gap is by improving their credit before they apply for further funding, presenting themselves as better candidates. By applying for a working capital loan, women can address pressing financial issues, such as covering payroll expenses when invoices are late or in the face of market fluctuations. Though the differences between most female-led and male-led businesses are negligible from a lending perspective, women have to work harder to achieve equality in lending.

A Broader Lending Market

In addition to working capital loans, there are many loan alternatives that could help women gain funding for tech startups. For example, microloans are a great option for women who need a small amount of capital to get their business started. These loans are typically short term with slightly higher interest, but if you pay them back quickly, you may be able to take them out in sequence to build your business up and establish a stronger credit line.

Small business association (SBA) loans are popular with women trying to break into the startup world, but the lending bodies suffer from insufficient diversity. The SBIC should mandate greater board diversity alongside policies that increase participation by women and minorities. Women shouldn't carry the burden when accessing business funds; that must fall on lending organizations.

Women are responsible for a range of exciting startups, from the health tech brand Ritual to Bellabeat, a wearable tracker company that combines health data with aesthetics�"but if we’re going to keep that work going and expand of community innovation, we need more money. It’s time for women to step to the front and funders to take responsibility. Inequality in lending is everyone’s problem.

Opinions expressed by the author are not necessarily those of WITI.

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