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The Credit Card Option
 

When it comes to financing start-up businesses, women rank low among banks and other institutions, leaving options such as credit cards to get the business off the ground.
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A distinguished gray-haired woman stepped up onto stage at the Small Business Administration Awards ceremony. The SBA regional director handed her a beautiful triangular, green marble trophy. As she gracefully reached for the award with her well-manicured hands, she moved to take her position in front of the microphone. The attendees leaned forward to learn her secret to success as she opened her acceptance speech with "Thank God for credit cards and cash advances." That ceremonial celebration was more than nine years ago and since then I have forgotten a great deal of public addresses yet I still remember her words.

I don't think it was the Armani suit she was wearing that threw me off so much as the level of honesty in which she shared with the crowd. Any entrepreneur who has been in business for more than a week has struggled to meet payroll and has drawn on second mortgages, retirement funds, or the dreaded loan from a relative (usually an in-law). But most business owners have a "don't ask-don't tell" policy about extraordinary start-up and growth financing. The award winner went on to tell her story that even after five years of successful operating history in a steady and growing business she was unable to obtain financing for her firm. Over the years, she had put more than $275,000 worth of venture debt on her credit cards and had paid them back (22% interest and all) so there would be room to fund the next round of company growth.At that point, I had only recently opened my own business when I heard the credit card story and two things came to my mind: 1) I am jealous that I don't have that kind of room on credit cards, and 2) What's wrong with this woman that she can't get a loan or an investor or the like? Please keep in mind I had only been in business for a little less than a year and I was still naive. As time progressed and I have gone out into the world of capital to raise funds for my own corporate growth, I now know what was wrong with her. She was a her - a woman.

According to the Center for Women's Business Research, women-owned businesses are just as financially strong and creditworthy as their male counterparts and they share similar credit risks and likeliness of staying in business. Yet women-owned businesses receive only 9% of institutional investments and less than 2% of the total investment pool. Additionally, venture capital firms only have 15% of their portfolios extended to woman-owned ventures. It doesn't make sense. If the risk is the same and the variables somewhat similar why is there such a discrepancy in the world of capital? Some say there is a gender bias in lending and that banks automatically score women and minorities low, but it's hard to say for sure, since bankers have resisted collecting data on small business loans, especially rejected applications. The SBA Office of Advocacy clearly recognizes the challenges that women-owned firms often face in looking for debt or equity financing and their statistics show that less than 2.5% of all female operated businesses receive venture capital. The reasons why are not clear and will probably never be understood, but the facts remain that viable business ventures need financing and financiers need investment vehicles.

When I first approached a bank several years ago to secure a line of credit, I was immediately turned down. Then, my lawyer who is well respected in the community made an introduction for me to his banker friend, the head of the rejecting bank. Fortunately, the bank did give me a line and the relationship continued successfully for years until one day I suggested that the bank be a little more competitive on my interest rate. In response, I actually heard terms like "ungrateful" and "unappreciative" in describing my request. Before I had hung up the phone, my lawyer was told of my "disappointing" behavior. Now mind you, I pay my bills and I had never been late or even had a problem. Our financial reporting was timely. What's more, the bank was collecting a boat load of money from us on interest and fees, which I didn't mind as it is a cost of doing business. But the loan wasn't free - there wasn't any special set-aside or a blood oath that I couldn't ask about a more competitive relationship.

Based on the sheer number of loans for women-owned businesses, it's hard to imagine that mine is a unique story. But there could be some hope on the horizon as the U.S. Women's Chamber of Commerce recently announced a partnership with Newtek Small Business Finance to create more financing opportunities for women who go into business for themselves. The focus of the program is on communication, education, and support for business owners. And there could be one other solution to financing a women-owned business and that is the art of networking. In the world of "it's who you know" knowing the right people can be the key to forming strategic business relationships.

So the question still remains over why the woman-owned business financing market is so underserved. Is this the next great venture for financing institutions or will the inequity in investing and lending remain for years to come? I don't know. Statistically the numbers are clear that businesswomen are as successful as businessmen and deserve the same considerations. And when it comes to credit cards, women know how to use plastic for everything including the next big success.

Last updated: May 1, 2005




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