Tuesday, January 26, 2016

WOMEN IN BUSINESS: Female Business Owners Less Likely To Get Financing

Two interesting points in the Women In Business Small Business report: Majority Female-Owned Small and Medium-Sized Enterprises (May 2015). 

  • 62 percent of majority female-owned are concentrated within a handful of industrial sectors: 
    1. Health Care & Social Assistance
    2. Information & Cultural Industries, Arts, Entertainment & Recreation
    3. Retail trade
    4. Accommodation & Food Services
  • The rejection rate for financing was more significant for majority female owners than majority male owners due to insufficient collateral (66.6 percent versus 35.7 percent) and the fact that the lending institution judged that the operated in an unstable industry (65.7 percent versus 24.8 percent). 

Owners' Access to Financing:

Many entrepreneurs and businesses rely on external financing to launch new businesses or to grow an existing business by, for example, expanding operations, conducting research and development activities that lead to innovation, or exploring exporting opportunities in new markets. Retained earnings, owner equity and other assets are often insufficient to finance these activities and many SME owners must access external sources of capital such as debt, leasing, trade credit and equity financing.

The figure belows shows the external financing requests of SME owners in 2007 and 2011. Compared with 2007, a greater proportion of owners, across all ownership categories, sought external financing in 2011. In 2007, 20.7 percent of majority female-owned SMEs, 22.9 percent of majority male-owned SMEs and 20.7 percent of SMEs owned equally by males and females requested external financing. In 2011, 29.3 percent of majority female-owned SMEs, 37.5 percent of majority male-owned SMEs and 36.6 percent of SMEs owned equally by males and females requested external financing.

As shown in the following figure, a similar pattern was observed with respect to requests for debt financing

It is important to note that a very large majority of SME owners—more so in the case of majority female owners—did not request financing. This may suggest that majority female owners, compared with majority male owners, have different perceptions about requesting financing from lending institutions. Statistics Canada's Survey on Financing and Growth of Small and Medium Enterprises, 2011, reported that 4.2 percent of majority female owners, compared with 2.7 percent of majority male owners, are discouraged borrowers. That discouragement was based on the assumption that their request would be turned down or that applying for financing was too difficult or time consuming (3.9 percent of majority female owners versus 2.0 percent of majority male owners).

Another way to interpret these results is to look at the ratio of authorized to requested financing amounts, which is illustrated in the figure below. The data suggest that majority female owners experience more difficulty accessing financing than majority male owners and equal ownership owners. Notably, there is little difference in the approval rate for majority male-owned SMEs and SMEs owned equally by males and females.

As mentioned earlier, most majority female-owned SMEs are concentrated in service-oriented industries, where the environment is characterized by intense competition and lower economic returns. Financial institutions likely view these types of firms as riskier business investments.

Read more:  https://www.ic.gc.ca/eic/site/061.nsf/eng/h_02966.html

Related article:  The Paradox Of Women Business Owners

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