Sometimes the hardest part about owning and operating a business is taking those first crucial steps. If you have started on the road to becoming an entrepreneur, then you’re very well aware of this fact. Building a business plan, testing your ideas, finding the right team, and executing a successful launch are all very important factors when starting a business. However, many of those things simply can’t happen without the right amount of working capital.
Women entrepreneurs are an important part of the economy, and the number of women business owners has been steadily increasing annually. In fact, 40% of small businesses today are owned by women, and 11.6 million people are employed by businesses owned by women. Still, despite those impressive numbers, women often struggle to find funding options for getting their business off the ground.
The challenges faced by female entrepreneurs can lead many to give up or face unreasonable hardship on the road to starting their own successful business. Not only does this hold women back, but it can hold back the entire economy. Finding a loan is one of the first major hurdles to overcome when facing this complicated challenge.
Thankfully, there are a number of loan options out there that cater to women seeking to fund the next great business idea. When banks and other traditional lenders turn their back, there are still options available to you. These alternative lenders give women entrepreneurs the chance they need to create their own success.
Why do women need specialized loan options?
You may be wondering why you even need to consider alternative lenders. Why not just walk into a bank and get a business loan? After all, that’s usually the first step most entrepreneurs take when they’re ready to launch their businesses, but in some cases, you may, unfortunately, be faced with serious opposition from traditional lenders.
There are a number of reasons women may face difficulties at a bank that their male counterparts can’t relate to. A lot of it has to do with the background of the woman seeking out the loan. Women often come from a broad range of backgrounds, some of which may not be ideal for the strict lending requirements that many lenders use. For example, a woman who has been out of the workforce raising children for several years may not have the work experience that a traditional bank is looking for. This is by no means an indictment of her skills, knowledge, or business idea. Rather, it is a product of a lending system that has failed to adapt to the growing wave of women entrepreneurs.
There is also an issue with the amount of financing often needed. In today’s modern world, many new entrepreneurs are looking to start their business with a smaller amount of upfront financing in order to reduce debt and make the most of their early cash flows. Some banks simply don’t offer loan amounts that are less than specific funding requirements. Most financial institutions want big loans that will guarantee interest payments for years, while entrepreneurs want lean startups. These two goals simply don’t align. As a result, entrepreneurs need to find lending options that meet their unique needs and goals, rather than the goals of the bank.
Another challenge you may be facing while trying to secure funding is personal credit history. One of the most important things a lender considers for new entrepreneurs is your credit history. Since the business doesn’t yet exist or is only in the early stages with no business credit and annual revenue projections that are too early to predict, there is little cash flow or solid sales projections to share. As a result, entrepreneurs end up guaranteeing their business loan with their own finances and credit. If you have a limited credit history, this can result in an automatic “no” from many lenders. However, some specialized lenders that aim to help women entrepreneurs are willing to look beyond the credit score and consider the total picture in order to approve financing.
Of course, you may be looking for alternative lenders despite being approved by a traditional lender like a bank. Small business loans often pose risks for banks and, and as a result, they may offer you a loan but with an incredibly high interest rate attached. Sometimes this rate can be 10% or higher, which is almost like funding a business using a credit card. Alternative lenders that cater to small business owners often have more preferable interest rates that make managing payments far easier. With lower interest rates, you can use more of your cash flow to actually grow your business instead of simply maintaining your regular loan payments.
Lack of security is another problem you could encounter when getting a loan at a bank. As mentioned, small business loans can carry some risk. Therefore, banks will try to offset that risk by taking real estate, investments, or cash as security for the loan. Unfortunately, not everyone has a mortgage-free home or a paid-off vehicle that they can offer as security. Even if you do, you may not want to put that kind of collateral up for your business loan. Smaller, non-traditional lenders are often much more willing to consider unsecured loans for new female entrepreneurs. This can quickly overcome a major challenge faced by many when they enter a bank seeking out a small business loan.
There are countless reasons why you may want to consider lenders that specialize in women entrepreneurship and small business lending (or even business lending for veterans, if it applies). Banks are often the first place that entrepreneurs turn, but they may not offer the best loan programs.
Check out our guide on the Small Business Loans
When do you need these loan options?
So, when should you turn to an alternative lender? This is often the question many women entrepreneurs face.
The most obvious time to seek out lending for a small business is when you are just getting started launching the business. You may have little to no cash flow coming into the business but you need to lease a location, launch a website, hire staff, bring in inventory, and tackle any number of other things that come up in the initial stages of starting your business. Of course, that lack of cash flow can also be the greatest obstacle to getting a loan, which is why alternative lenders for women are so important to getting your business started.
However, business financing isn’t just for when your business is entering the initial startup phase. Many businesses that have been around for years still seek out financing to fund any number of activities. Imagine you have identified an important growth opportunity for your business, but your cash flow doesn’t yet support this expansion. It could be a new product, a new location, or new service that requires additional hiring. A small business loan allows you to take advantage of the opportunity right away before it slips away. Plus, if everything works out, the loan will help to eventually increase cash flow and give you the chance to maybe even fund your next opportunity right from your businesses’ cash reserves.
Alternative funding sources for female entrepreneurs are also important, even if you have secured a financing offer from a traditional lender. This is often the point where many women consider their financing options. Bank loans, as previously mentioned, can be costly with high interest rates and fees simply to get the loan. The bank may want security or impose unreasonable repayment terms that don’t allow your business to actually make any forward progress. When faced with crippling debt that doesn’t actually grow your business, alternative lenders may be something to consider before signing on the dotted line at the bank.
In addition to the unreasonable terms from banks, you may find the process to be lengthy and unfriendly to a new business owner. Banks want to dig through credit reports, lending history, and a detailed business plan. They may pick details apart and continuously ask for more information or documents. Before you know it, weeks or even months can pass before you even get a final decision on your loan. This is obviously not an ideal situation, especially if you need access to working capital quickly. It becomes even more problematic if your business idea is something that’s seasonal or relies on being the first to market. If you’re frustrated by the bank’s lending process, then you may want to turn to another solution where you may be able to get approval faster and with fewer documentation requirements.
Frankly, there is no single time that a small business owner may need a loan. At all points during the life of a business, there may be a need for a loan to help further growth. If you’re struggling with financing, regardless of what stage your business is in, it’s important to consider all lending options that are available.
How to choose the right loan option and what to look for?
Not all lenders are created equal and choosing the right one for your business is key to ensuring you can actually focus on the growth of your business instead of worrying about the numbers. There are some essential things to look for when considering loan options for your business.
First, you need to consider the features of the loan itself. Even among alternative lenders, the types of loans they focus on can vary from lender to lender. Some target small loans often referred to as microloans. This is perfect for your business if you just need a helping hand to get over a small hurdle without saddling your business with enormous debt. Microloans can also be a fantastic way to test a business idea before going all-in. After all, if you need to purchase some stock or get a prototype made, you may not want to immediately take on tens of thousands of dollars in debt.
It’s also important to remember that not all loans have to be the traditional fixed-term loan that many people are already familiar with. Your business may require a business line of credit that is always available for when you need it. Rather than paying off the loan and then applying again when you need credit, you may want to opt for a line of credit that can be used to fund operations, paid down, and then used again with no new application. Not all lenders offer other lending products beyond the basic fixed-term loan so, if you’re looking for something more customized and flexible, be sure to find out whether the lender you’re considering offers the product your business needs.
Many lenders advertise low interest rates as the main feature of their loans, and interest is one of the most important things to consider with any loan. Getting financing is one thing, but you need to ensure that your business can manage the payments. Depending on the size of the loan, a small difference in interest rates can amount to hundreds of dollars per month. Your amortization will also have a huge effect on the amount of your monthly payments. All of this is important to consider as you project your cash flow to ensure you can manage your loan payments, as well as all of the other costs associated with running your business.
You will also want to look closely at the requirements for lending. For example, not all lenders will work with new businesses. Some may require a certain amount in annual sales, as well as a complete credit check. Other lenders, however, may simply want to see a business plan in order to secure lending. Most online lenders are clear about their lending requirements and this can help you narrow down the options that will work for you and which ones may be a consideration down the road after you have developed your business.
Another thing to consider is what banks offer over and above basic lending. Some lenders take things to the next level. For example, you may find a lender that offers to refinance of other loans. This is ideal if you are seeking a larger loan and want to consolidate all of your payments into one. Others offer small business solutions to help you run your business, like marketing assistance and/or specialized equipment financing.
Fees are always an important consideration for any business loan, and can quickly add to the true cost of getting a loan. Most people look at the monthly payments and the interest rate without factoring in fees. Some lenders will charge a small, one-time activation fee for the loan, while others may have monthly fees in addition to regular payments. There could also be significant fees for refinancing or missed payments that you should be aware of so that you understand the complete and true costs of your loan.
The ease of use with the online lending platform is something you should look closely at as well. Getting a loan is always the most important goal, but the platform you choose is one that you may be using for years to come so it should be something you feel comfortable with. And this all begins with the loan application. Most alternative lenders offer a simple online application form but others take things a step further with a mobile app that allows you to apply for lending on the go and submit necessary documentation right from your smartphone or tablet.
Once you have secured a loan, it’s important to monitor the status of your loan, verify the amount outstanding, and understand how to make additional payments if you so choose. Much of this can easily be done through the lender’s online platform. Having access to a platform that’s easy to navigate can save you a lot of time and stress. Plus, if you hope to make additional payments and pay the loan off faster, it’s important to understand how to do this, whether you need to link your bank account, or if it’s as simple as submitting a request through the website.
How the lender gets money for funding is also an important feature to note. Some lenders, for example, get their funding through donations. Others may use micro-lending from other people to fund their loans. This is called peer-to-peer lending since it uses small amounts from many users to fund a larger loan for a single business. Peer-to-peer lending has become a popular form of investment for people who want to earn interest income on their money. In order to attract investors, however, lenders often have to offer higher interest rates. In addition, some investors may have control over where their money is sent, as well as put strict requirements on who will qualify for the money being provided.
Of course, customer service is an essential part of getting any loan. If you’re experienced with bank loans, then you already know that you can typically walk into a bank and get service from one of the staff members there. Online lending solutions are different and customer service is an important part of the overall experience. If you have issues with funding and payments, or simply need to have a question answered quickly, having access to reliable customer support can make your lending experience much more enjoyable.
Customer service staff also play an important role in helping you get the right advice regarding your loan. Before signing on and committing to a loan, is there someone you can turn to regarding advice for your loan, how to repay your loan quickly, and how to make the most of the funds available? Is customer care available in case you run into an issue with your application? Do you actually have to speak to someone in order to process your application? All of these are questions you may want to have answered before you actually begin to loan application process.
As you can see, there are a lot of factors to consider as a part of the overall lending experience, and getting access to money is just one part of the equation. You also need to consider the unique features of each individual lender, as well as the initial costs associated with getting a loan, ongoing interest charges and fees, the ease of use for the platform, and customer support. All of these pieces need to work together seamlessly to create a positive lending experience that can help you build a new business, or grow your existing one, into the venture you have always dreamed of.
Street Shares has arguably the most expansive product offering of all lenders on this list. The company was started by veterans to support other veterans but has since expanded to support those without military service experience as well. Businesses can apply for unsecured fixed-term loans, line of credit, and inventory financing. In addition, Street Shares also offers secured lending for larger expenses like equipment purchases. Secured loans also have the benefit of lower interest rates. Finally, veterans that are looking for financing can enjoy preferred pricing from Street Shares which makes it an ideal choice if you’re a veteran. The turnaround time for funding is within 7 days which is respectable but not industry leading. Still, Street Shares excels in many other areas including, most importantly, pricing and customer service.
Credibility Capital is an interesting option on this list as they work with banks to search for the best loan to meet your needs. Essentially, working with Credibility Capital is like working with a bank but they do the heavy lifting of shopping around the various lenders for the best rate. As a result, they have some of the best pricing in the industry. The downside of choosing this route for your business financing is that you are essentially left to work within a traditional bank’s lending requirements. For a new business, this could pose an issue if there is limited cash flow history or credit history to work from. The customer service is helpful and, if you’re able to qualify, you will get one of the best business lending rates available. However, a new business may want to look elsewhere for lenders that are more willing to lend to startups.
Kabbage is one of the lenders on this list that is willing to offer larger amounts to small businesses. With the ability to apply for a loan in just 10 minutes using their sleek mobile app, you can have an answer regarding your funding much more quickly than going to a traditional lender. The simple application offers you the chance to select your lending amount up to $250k, the length of term you are seeking, and provides personalized support throughout the process if you run into an issue. It’s hard to find a sleeker, more friendly platform than Kabbage but the interest rates may turn some business owners away. Additionally, the limited term lengths offered may make monthly payments on a larger loan unreasonable for some businesses.
Lending Club is one of the most well-known and established peer to peer lenders in the industry. One of the immediate features you will notice from Lending Club that sets it apart from the competition is the maximum loan which is $500k. This makes it one of the best choices on this list for businesses that have more significant financing needs. Lending Club is funded by other uses looking to invest and earn a return. As a result, they may not offer the absolute lowest interest rates but they are comparable with other options in the peer to peer lending space. Interest rates start around 6% and increase from there. Lending Club offers a wide range of personal and business lending products with amortization terms up to 5 years which offers you payment flexibility to fit your businesses’ cash flow.
Funding Circle is another peer to peer lender that offers investors the opportunity to invest in growing businesses and earn interest on their investment. Their website advertises incredibly low fees and rates with interest rates starting at just 1.9%. Realistically, unless your business has an established history and impeccable credit, the rates you will receive are likely higher than that. However, their pricing is impressive when you consider the minimal additional fees and option to pay out the loan early with absolutely no penalty. Funding Circle offers unsecured loans up to $500k for small businesses but, as a result of the large dollar values being offered, the application process is somewhat lengthy. Still, even small businesses with limited history may qualify for a smaller amount and, given the low fees and rates, Funding Circle may be worth consideration.
OnDeck is a lender that focuses on helping small businesses with limited history. They also offer operating lines of credit which may be preferable to a fixed term loan if you are looking to have continuous credit available. The financing from OnDeck comes from investors that provide funds for OnDeck to then lend out to borrowers. The downside of this for borrowers is that OnDeck must charge an interest rate which makes their loans an attractive investment. As a result, most loans feature double digit interest rates. With that said, OnDeck offers early payment discounts and some of the lowest fees in the industry. Aside from interest charges, OnDeck is one of the most flexible and affordable alternative lenders in the market today.
Accion is a unique option on this list as it’s a non-profit organization rather than a for-profit operation. It seeks out donations from individuals to help fund micro loans for women around the world. Their funds also come from the interest rate they charge other borrowers. For a new business, Accion may be a good starting point because of their more relaxed lending criteria. You don’t need a pile of documentation and solid business history to get one of their micro loans. However, that means Accion takes on additional risk and, as a result, their interest rates tend to be higher than much of the competition. Still, for the easy loan applications and top-quality customer service, the additional interest charges may be worth it especially for those just starting their entrepreneurship journey.
QuarterSpot advertises itself as the transparent alternative to many other lenders that may not make their fees and associated costs clear to users. To their credit, it is very easy to visit the website, start an application, and clearly see the fees you will be paying to get a loan up to $250k. One of the most exciting features of QuarterSpot is the turnaround times for approval and funding with loans being reviewed in minutes and funds deposited within 24 hours. While their fees may be clear and transparent, they are not the lowest fees available in the industry. Interest rates are also higher than some competitors but that reflects the streamlined application process and increased risk to QuarterSpot as a result.
SmartBiz is an online business lender with some of the most affordable interest rates available. Since interest makes up such a major portion of the cost of a loan, this should be music to the ears of many small business owners. For businesses with a more established history, SmartBiz may be the right option. The interest rates generally fall below the 9% mark and SmartBiz lends out larger amounts of money with the smallest loan offered being $30,000. For new businesses, however, SmartBiz may not be the best option. The lengthy and detailed application process isn’t very user-friendly and requires information that a new business owner simply won’t have. Another very interesting feature is the length of terms offered by SmartBiz with some loans being amortized over 25 years. This makes repayment much more manageable with smaller loan payments over a longer period of time.