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Three Challenges Faced by Female Entrepreneurs Working to Tackle the Gender Gap

By: Alicia Botha, MSME Engagement at Bright

Women face significant challenges across most industries when trying to establish themselves as equal counterparts to men. Most common, is the obvious salary gap where women are paid significantly less than men in comparable jobs. Major corporations, in industries including professional services, real estate and goods production, are a male-dominated force, and tackling these barriers is no easy task. Women-owned firms dominate few industries compared to those run by men: healthcare and education, retail, and hospitality. Many women make the switch to running MSME’s where they then face the additional difficulty of trying to grow a small business. MSME’s, while one of the fastest growing career paths, lack significant access to financing, resulting in a “credit gap” of $5.2 trillion. With both of these issues laying the foundation for women in the workforce, they are faced with three significant challenges for establishing themselves as capable and credible workers.

Inadequate capital

Because of their small size, MSME firms rarely have access to external funds from public markets, forcing them to be dependent on banks. Small businesses have little or no collateral and, as relatively young firms, do not have extensive history to confirm performance success, even if they have high growth potential. As a result of this, women are often discouraged from even applying for credit out of worry they will be rejected, further contributing to their low credit score.

Female entrepreneurs have less access to financial capital than male counterparts

In a study done by the National Women’s Business Council it was discovered that women typically obtain smaller loans, and are three times less likely to access equity financing through angel investors or venture capitalists. Many young and small businesses, which are commonly female-run, are less favored by bankers, with women accounting for 32% of the total credit gap. The study also found that women are also more likely to take on unsecured debt and less likely to use personal guarantees or business assets as collateral. They operate with much less capital on average that, for the most part, does not disappear in subsequent years.

Problems with equity

Women are more likely to have limited social interaction with VCs and lack in representation among fast-growing high-tech businesses. Much of their work is financed informally or from self-funding. This is more characteristic to the limitations women in the workforce have due to their gender, rather than the size of their business. In a report published by the Federal Reserve Funds of Kansas and New York venture capitalists are also less likely to invest in industries such as healthcare and education, that are 21% run by women, 13% run equally, and only 10% run by men, seeing it as exemplifying medium/high credit risk. 41% of women-run businesses are reported as medium/high credit risk, compared to 33% of male-owned firms.

According to US Census Bureau data, the 11.6 million women-owned companies across the United States employ nearly 9 million people and generate more than $1.7 trillion in revenue. Even with this hugely important economic contribution, the credit gap is continuing to widen, impacting the further potential for growth in this key small business demographic. Now more than ever women are provided with opportunities in business ownership, with declining startup costs and increasing technological innovations. In order to incentivize them to take this step, women need to know that they will be accredited as equal to men, including the same access to credit . While the capabilities of women entrepreneurs  are well proven to be the very opposite of lacking, initiatives need to be taken more seriously to one day eliminate the gender gap altogether. We are now in an age where entrepreneurship is one of the most important  drivers of global prosperity, promoting competitiveness and innovation. The numbers prove that it is necessary to begin fostering an environment where women will also have the opportunity for success, not just survival.

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