Obtaining a business loan is an important step for many startups, nonprofits, and small business owners who are growing or expanding their existing companies. Access to that funding can make or break a new company.
Women business owners face many obstacles when starting a company compared to their male counterparts, including accessing the capital they need to get their brand off the ground. As a result, only 21% (around 1.1 million) of all businesses in the United States are owned by women, according to the U.S. Census Bureau.
Luckily, there are numerous loan programs and other business financing options available to female entrepreneurs. This article will walk you through the typical small business loan application process for women-owned businesses so that you can launch your company and turn your dreams into a reality.
The Best Small Business Loan Options for Women-Owned Businesses
Entrepreneurship and getting a company off the ground can be overwhelming. If you're looking for business loans to fund your endeavor, don't worry. There are numerous funding options - from traditional lenders to microloan programs - for your woman-owned business. Here are a few funding avenues to consider. Determine your business needs before choosing a funding option for your company.
Small Business Administration (SBA) Loans
In general, the Small Business Administration (SBA) is an agency that helps small business owners connect with lenders and also access training and other resources so that they can find success. Its primary loan initiative is the 7(a) loan program for borrowers of all backgrounds.
However, the SBA's Office of Women's Business Ownership (OWBO) is designed to help women entrepreneurs. This branch of the agency offers various programs: business training, counseling, federal contracts, and access to credit and capital. The office helps women as they navigate SBA loan programs, the agency's Lender Match tool, local business funding resources, and its 8(a) Business Development program. The program ensures that the federal government offers at least 5% of federal contracting dollars to small, disadvantaged businesses, including women-owned companies.
Small Business Loans From Banks
As a woman entrepreneur, don't be afraid to apply for loans through online lenders, credit unions, and traditional banks. The amount you can borrow depends on each financial institution and its lending guidelines. It's important to research the terms and requirements of each lender before jumping into the application.
Banks are some of the best options for small businesses to obtain funding. They typically offer some of the best interest rates for business owners. They're sometimes more difficult to access, though, as bank lenders will ask for proof of business successes or some kind of collateral.
Long-Term Business Loans
Women business owners might opt to fund their endeavors through long-term financing. These long-term business loans offer longer repayment terms, meaning you have longer to repay your lenders. Longer-term loans usually mean you have anywhere from 10 to 25 years to repay a loan.
These loans are ideal for women who are seeking to grow their businesses or make a big investment in their expansion. These long-term business loans also offer borrowers lower monthly payments and a longer repayment period.
Microloans are another option to fund a woman-owned business. These alternative lenders are ideal for those who need smaller amounts of working capital and offer competitive rates. These short-term, smaller loan amounts offer a quick and easy boost for any business owner.
Business Line of Credit
For women seeking more flexible funding, a business line of credit could be a great option. It's a great card for a business owner to have in their pocket, as it's a predetermined amount of money available for companies to tap into as needed. It can help with unexpected expenses or purchasing things like inventory and supplies. After borrowing as needed from this pre-approved, easily accessible line of credit, you can pay it back later.
It's very different from traditional term loans, though. As a business owner, you'll only borrow from your line of credit as needed. Once you pay back what you've borrowed, the funds become available to you again.
Business Credit Cards
Similar to a personal credit card, businesses can apply for credit cards intended for business use only. This revolving line of credit is open to women-owned businesses of all sizes and lengths of existence. While the balance doesn't need to be repaid during each billing cycle, an interest charge is carried over.
The Small Business Loan Application Process
Every small business loan will have its own requirements and application process; double-check what they're asking of you before you apply. Check out these general steps for female business owners to obtain a loan. No matter which loan you apply for, you'll likely follow a similar process.
Prepare a Business Plan for Your Application
No matter which business loan you apply for, your business plan will be one of the most important documents you can have on hand. Your plan should include the following information:
- An executive summary (or snapshot) of your business
- A more in-depth company description
- A market analysis for your industry
- A full list of your services and products
- Your organizational and management structure
- Your marketing and sales plan
- Your annual revenue and a financial outlook for your business
Having all of this information in one place is useful as you grow your business, and many potential lenders will want to review this before offering you any money.
Complete the Loan Application
Once you've reviewed the requirements of your loan, fill out your loan application. It's important to make sure it's accurately filled out before you hit the "submit" button. Your potential lender is asking for specific information for a reason. If any information is missing or incorrect, they could turn you down for a much-needed loan.
Lender Reviews Application and Checks Credit
After you've filled out your loan application, the lender will review your eligibility. Your credit score and history will also be considered at this point.
If you're launching a new business, a lender will review your personal credit score. If you have a credit score of 720 or above, that's considered very good. You'll fall in the middle if you have a score of 620 to 719, and you're considered higher risk if you have a credit score under 620.
If you own an established business, a lender will also review your business credit score. Business credit scores range from 1, the highest credit risk, to 100, the lowest credit risk. Anything between 80 and 100 is considered a good score.
Lender Completes Loan Underwriting Process
During the loan underwriting process, your lender will assess the risk of lending money to you. Lenders will look at a multitude of areas, including cash flow, credit history, and revenue. Basically, they want to determine that you'll pay back any money that you borrow.
The Loan Is Closed On
When your loan "closes," it's the last step in the process of obtaining a loan for qualifying businesses. At this step, you'll secure collateral, ensure the lender has all of the documentation required, and sign your loan agreement.
Loan Funding Begins
Finally, once you've closed on your loan, the funds can be released to your business bank account. This is the final chapter of the small business loan application process. Once you've received your funds, be sure to pay attention to the terms of your loan and understand when repayment begins.
Accurately Track Your Small Business Finances With Skynova
As a small business owner, accurate accounting is critical to your success. Skynova's full range of accounting software and invoicing templates can help you manage your finances by tracking your income and expenses.
Our accounting platform and customizable templates create a centralized hub for all of your accounting needs. Whether you're generating invoices for customers, creating purchase orders, tracking payments, or accepting deposits, we're here to support your business every step of the way.
Notice to the Reader
The content within this article is meant to be used as general guidelines and may not apply to your specific situation. Always consult with a professional accountant or your lender to ensure you're meeting business lending requirements and standards.