Special Report--ENTERPRISE: Finance: Women Entrepreneurs
A `NEW-GIRL' NETWORK STARTS TO TAKE ROOT
After Michelle Berry was fired in 1993 from her sales job with a coffee equipment distributor, she borrowed $15,000 from family and friends and pluckily started her own business wholesaling espresso machines to restaurants, hotels, and stores. Two years later, Java Traders Inc. is nearing $1 million in sales, and Berry needs to hire more employees and increase inventory.
An against-the-odds success story? No thanks to local banks, who shunned her, says the 30-year-old Arvada (Colo.) resident. "I was too young of a woman in a totally male-dominated business," she says. Berry hadn't been in business long enough, banks said, and her assets weren't liquid enough. Luckily, Women's Equity Fund (WEF), a Denver-area venture-capital group, came to the rescue with venture funding, a guarantee for a bank loan--and a lot more. WEF helped her computerize, hire a bookkeeper, and market her products. "Any question I have, they're there to support me," she says.
Raising money for small businesses is daunting for any entrepreneur, but, as Berry learned, it's particularly vexing for women. Although they now own 40% of U.S. businesses and start them twice as often as men, women have not been welcomed by traditional sources of financing such as banks and venture capitalists. According to a recent study by the National Association of Women Business Owners (NAWBO), 52% of women entrepreneurs turn to credit cards to finance their businesses, vs. 18% for all small businesses.
Yet, the path to financing is widening. More banks are lending to small business, and a few venture firms are targeting female entrepreneurs. The Small Business Administration rolled out some programs that facilitate lending to women, and organizations are surfacing to offer technical support for women to start, run, and expand their businesses.
That's a turnabout for many banks, which have eschewed small firms. The interest on loans of less than $50,000 usually doesn't cover the processing costs. And banks' lending criteria, often tailored to larger companies, frequently don't apply. Worse yet, because they predominantly start service businesses, women often lack the hard assets banks require for collateral. And, according to NAWBO's study, one-third of women entrepreneurs still "perceive some degree of gender-based discrimination from their financial institution."
But moves are afoot to lower the banking barrier. On Sept. 20, Wells Fargo & Co. announced a new $1 billion fund to lend expansion funds to companies owned by females. "Women-owned business is a large and growing market," says Terri Dial, executive vice-president of the Business Banking Group at Wells Fargo, "and it's not well-served." Borrowers need good personal and business credit and to have been in a profitable business for two years. At least one other bank, Harris Bank Corp. in Chicago, has formed a unit solely to lend women amounts ranging from $10,000 to a few million.
Wells, the largest lender to small business, cut the cost of such loans by automating the process, screening for promising recipients, and sending out a direct mailing of prequalified loan applications--the way banks do with credit cards. Other banks, such as Bank of America Corp. and PNC Bank Corp., have boosted small business lending.
NEW INITIATIVES. Many entrepreneurs have turned to the SBA, which guarantees 70% of a bank loan. But although women have been starting businesses in record numbers, until 1993 they were getting only 8% of SBA-guaranteed loans. The SBA raised that percentage to almost 25% by 1995 with new initiatives such as the Women's Pre-Qualification and Low Documentation loan programs. Through the former, in effect in 16 cities, the SBA gives a preliminary commitment to guarantee a loan before the entrepreneur approaches a bank. What has made the biggest difference, says deputy administrator Cassandra Pulley, is a simplified, low-documentation process for loans under $100,000. The old 12-page application has been replaced by a one-page form. "That made it a lot easier for banks to process the loans," she says.
Venture capital is the toughest source of financing for entrepreneurs to crack, because investors covet rapidly growing companies in areas such as high tech that can deliver better-than-market returns. But two-thirds of women-owned businesses remain in low-growth areas of retail and services. Moreover, the venture community has always been clannish. Of the 2,000 professionals in venture-capital firms, fewer than 50 women are decision-making, deal-doing partners, according to Sona Wang, a principal at Inroads Capital Partners, a $50 million Evanston (Ill.) fund. "A lot of guys know how to get on the network," says NAWBO's venture-capital liaison Beth Kljajic, who has started several businesses of her own. "I didn't even know the network existed--and there's no women's version."
But some are trying to redress this problem. Inroads Capital looks for women- and minority-owned businesses, which are "vastly underserved by the institutional marketplace," says Wang. It funds companies with several million dollars in revenue that want to raise $1 million to $10 million. Other venture groups targeting women include Denver-based Women's Equity Fund, which has raised $750,000 in equity financing and is working with the Bank of Boulder and Norwest of Colorado to provide debt financing as well. President Annette Taylor thinks investing in women-owned businesses gives WEF an edge: It's a "niche market that has not already been exploited," she says. And Blue Chip Venture in Cincinnati has a $15 million opportunity fund designated for women and minority-owned businesses.
Also promising for startups is Chicago-based Investors' Circle, a nonprofit network of investors who invest in socially responsible businesses, including many owned by women, says Executive Director Susan E. Davis. Women entrepreneurs submit a company description that is circulated to 150 potential investors nationwide. "Our members invest in seed stage, startups, expansion, and mezzanine-level financing," says Davis.
Two other organizations are addressing another perennial problem for women entrepreneurs: the lack of collateral. Women Inc. in Long Beach, Calif., steers members to a $150 million loan pool from the Money Store Inc., an official SBA lender, which uses the Low Doc program to qualify loans on the basis of personal credit, the business plan, and the ability to repay from cash flow, rather than collateral. Women Inc. also provides referrals, technical support, and benefits such as health care and discount business services for a $29 annual fee.
Likewise, Women's Collateral Funding in Philadelphia is raising a million dollar fund to buy CDs that serve as collateral for female entrepreneurs who have none, but otherwise would qualify for bank loans. In exchange, WCF takes a small equity or royalty stake in the company.
SKILL SHARPENERS. Probably the biggest financial barrier for women--even those with an intricate knowledge of their own businesses--remains their ignorance about how to craft a business plan, make projections, or seek outside financing. However, many organizations exist to teach these skills. The American Women's Economic Development Corp. (AWED) in New York, Los Angeles, and Washington, the Women's Business Development Center in the Midwest, and NAWBO all provide referrals or classes in how to get financing.
So it appears that a "new-girl" network is finally starting to take root. Consider Nancy O'Rourke. After her divorce in 1990, she wanted the flexibility to raise her two children while she worked. The Long Beach (Calif.) singer started Mr. Cat Productions, supplying and operating sound equipment for concerts and speeches. In the beginning she financed the company from job to job. In 1993, she took AWED's course called Managing Your Business and learned crucial skills in recordkeeping and targeted marketing. She also compiled a two-inch-thick business plan. At AWED she met Executive Director Judith Luther Wilder, who soon left to start Women Inc. That's how O'Rourke found out about the Money Store and got the $75,000 loan to expand into renting sound equipment. For her, the new network is already paying dividends.
Where Women Can Turn for...
WELLS FARGO/NAWBO PROGRAM
800 359-3557 ext.120 Operates a $1 billion loan pool for women with established businesses and good credit
800 930-3993 $150 million loan pool, health plans, credit cards, and other service (membership $29)
WOMEN'S COLLATERAL FUNDING
215 772-1900 Guarantor/partner for women who are turned down for bank loans only because they don't have collateral
WOMEN'S EQUITY FUND
303 443-2620 $750,000 fund; also offers loans with local banks
INROADS CAPITAL PARTNERS
708 864-2000 $40 million fund; backs established businesses
708 876-1101 Circulates summaries of businesses to 150 prospective investors
BLUE CHIP OPPORTUNITY FUND
513 723-2300 $10 million fund; targets women and minoritiesBy Pam Black in New York