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Women Are Starting More New Businesses, But Struggling for Financing

  • Fed study finds male-led firms receive loans at higher rate
  • Female entrepreneurs also reported weaker credit scores

An increasing number of women are starting their own businesses, which should surprise no one given the recent reports of sexual misconduct and discrimination at big companies.

But even when women are their own bosses, the playing field isn’t level, according to a report released on Thursday by the Federal Reserve Banks of New York and Kansas City. Only 22 percent of women-owned firms have revenue exceeding $1 million a year, compared with 36 percent of male-owned firms, according to the study.

Financing is also awarded unevenly. Women-owned firms applied for business loans at a similar rate to men, but less than half were approved, compared with a 61 percent approval rate for men. The study looked at companies with at least one employee besides the founder, a universe where women make up 20 percent of the total.

Some of the gender gap may be a result of the sectors where women focus. Forty percent of women-owned businesses are in areas such as education, health, professional services and real estate, compared with 31 percent of male-owned firms.

Women also reported weaker credit: 53 percent said that they were a medium-to-high credit risk, compared with just 40 percent of men who defined themselves that way. The women also tended to seek smaller amounts of financing, often less than $100,000, the report said.

‘Micro Credit’

“It’s a micro credit market,” said Claire Kramer Mills, New York Fed assistant vice president and co-author of the report. Women sought financing from online lenders at about the same rate as men, but resorted to using their credit cards and other personal assets at a higher rate.

Women-owned businesses increased by 45 percent between 2007 and 2015, according to Small Business Administration data. Small businesses employing fewer than 500 people account for about half of private-sector employment in the U.S. and create almost 60 percent of net new jobs, according to the federal agency.

Getting women the financing they need, particularly so that their companies can survive the critical first five years, should be a priority, the Fed report said. Between 2007 and 2015, employment by small women-owned firms increased by 20 percent, while employment by all small firms declined 4 percent.

“Women-owned businesses account for a growing share of employment, so their success has macro implications for jobs,” Kramer Mills said.

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