Alternatives to Business Loans for Women

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American women who own their own businesses — or aspire to — face one of the classic “good news-bad news” situations: While the U.S. is number one worldwide for female entrepreneurs, women still find themselves suffering through loan approval rates 15-20 percent below men’s.  This gap in traditional lending makes alternatives to small business loans for women not only attractive but flat out necessary.

Fortunately, between creative companies in the financial community, the power of the Internet and public programs, there are more viable avenues for women to find funding today than ever before. Let’s look at five ways women entrepreneurs can make their visions come to life:

Alternative Small Business Funding 

1) Crowdfunding

Today, there are a two basic crowdfunding models. In the first model, investors get equity in the company in exchange for capital. In the other, “investors” receive some kind of premium — Kickstarter is probably the most well known in this category. People often donate money for the promise of receiving the first of the startup’s new product, rather than equity.

While women with solid business plans will generally get a fair shake on any of the crowdfunding sites (compared to men), Plum Alley deserves special note. It was founded for the purpose of bringing women investors and entrepreneurs together. It goes beyond some of the basic crowdfunding bells and whistles — investors pay a membership fee and then have access to investment opportunities, private showcases, and more. For women entrepreneurs and companies with women well represented in the C-suite offices, Plum Alley provides access to capital, including access to non-equity crowdfunding.

2) Rollovers as Business Start-ups (ROBS)

If you have retirement savings, such as an IRA or 401(k), you’re probably eligible to tap into that money to start your business. This funding strategy goes by the unfortunate acronym of ROBS.

For women who have spent years in the corporate world, have at least $50,000 in retirement savings and are ready to realize their dream of being their own boss, this can be a great way to go. The ROBS arrangement allows you to invest funds from an eligible retirement account into a small business or franchise without taking a taxable distribution or a loan. Starting your business debt-free, you eliminate risking your home equity and avoid making interest payments to a lender.

The best part? You can qualify for funding in minutes.

3) Unsecured Credit

While it can be risky, and the interest rates are on the high side, many successful businesses have been funded with multiple revolving lines of credit. For example, the founders of Google bought their first servers with credit cards. If you decide to go this route, here are some guidelines you should observe:

  • You need to have a solid handle on your cash flow situation. In your “worst case scenario” you must maintain a cash flow that allows you to keep your credit card payments current.
  • It’s best to use credit to purchase tangible items that will retain some value. If you get in trouble you can sell the assets and make a dent in your debt.
  •  Avoid using credit lines to pay overhead expenses – you’ll never get any of last month’s electricity bill back

4) Angel Investors

I’m including friends and family among the angel investors, and for women, those closest to you are probably a better bet than the typical angel investor. The statistics I’ve seen show that angel investors aren’t the best alternatives to small business loans for women; in other words, women’s success rates with angel investors still lag behind men’s.

Whether you’re approaching your family, friends or a Silicon Valley investor you need to have a solid business plan, a minimum viable product, a good team and a way to demonstrate your commitment. This means that you should’ve already put some of your own funds into your project.

5) Grants

Grants – funds that don’t need to be repaid – are the dream of almost every entrepreneur and for the overwhelming majority they will never be anything more than a dream. However, there are federal, state and private grants specifically for women-owned businesses. So, ladies, your chances here should be a bit above average.

If you’re applying for a grant, you need to approach it as a competition, and sometimes that’s exactly what they are, as with the SBA’s InnovateHER program. There are rules and judging criteria, and in the case of the 2016 InnovateHER challenge, the top three place finishers earned between $10,000 and $40,000.

New grants are being offered and others get defunded, so search the Internet for “women business grants” to get updated information. Further, consider business and startup competitions in this category. Even if you don’t win, going through the process will help you hone your business and get a better understanding of what is required for startup success.

With hard work and persistence, I trust you’ll find the money you need through one or more of these alternatives to small business loans for women.

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