Why women face greater challenges in business financing

By Wendy Kushel

Contributor

In 2023, startups founded solely by women received less than 3% of venture capital (VC) funding, a statistic that highlights persistent systemic barriers. Despite ongoing initiatives to promote diversity, equity, and inclusion (DEI), women, particularly women of color, encounter significant challenges when seeking business financing.

Bias in Venture Capital

Women entrepreneurs often contend with biases and stereotypes that undermine their credibility with investors. The venture capital industry remains dominated by men, many of whom unconsciously gravitate toward businesses that reflect their own experiences. This bias perpetuates a male-centric startup culture, marginalizing female-led ventures despite evidence that they often outperform.

Research indicates that male and female founders are asked different questions during funding pitches. Men typically field growth-oriented inquiries, while women are questioned about potential risks. This discrepancy disadvantages women, casting their ventures as riskier investments.

Challenges in Commercial Lending

Gender bias extends to commercial banking, where women face higher rejection rates for business loans. When women do secure financing, the terms are often less favorable, with higher interest rates, smaller loan amounts and stricter collateral requirements. These barriers stifle the growth of women-led businesses.

A prevailing social narrative frames entrepreneurship as a masculine pursuit, associating leadership and risk-taking with men. Evaluators often perceive women as less suited to entrepreneurial roles, further hindering their access to capital.

Industry Disparities and Assumptions

Women entrepreneurs are more likely to establish businesses in industries perceived as less capital-intensive, which may attract less investor interest. Additionally, outdated stereotypes, such as assuming women start businesses to balance work and motherhood, diminish their perceived seriousness and potential.

In some cases, female founders report being treated with less respect during business interactions. One entrepreneur recounted a supplier assuming her business was home-based simply because she was a woman, an assumption unlikely to be made with male counterparts.

Toward Equity in Financing

To bridge the funding gap, systemic changes are needed. This includes diversifying the ranks of investors, challenging stereotypes, and fostering a culture that values women-led ventures equally.

As one expert put it, “Women and men are equally capable of entrepreneurial success. The barriers women face stem not from their abilities but from societal norms and biases. Removing these obstacles is key to creating a more equitable business ecosystem.”

Wendy Kushel is the owner of Wendala’s LowCountry Sugar Scrub, LLC based in Bluffton, SC. Drawn to the Beauty & Personal Care Industry Wendy founded her company in 2020. Her background includes stand-up comedy, film, TV and a lot of sales and marketing. For more information about Wendala’s® LowCountry Sugar Scrub visit www.lowcountrysugarscrub.com or call/text 843-949-8933.