From the February 1997 issue of Entrepreneur

Not very long ago, the only thing that seemed to exceed women entrepreneurs' need for financing was the disdain with which many bankers treated them. As a result, many women were forced to finance their businesses using alternative (some might say desperate) means such as credit cards or loans from friends or family members; others simply lost hope of ever starting or expanding their businesses. It seemed we'd never see the day when bankers would accept a woman's business loan application with a straight face.

Yet in a relatively short period of time, that scenario has changed dramatically. Perhaps one of the greatest recent successes of the Small Business Administration (SBA) has been its Women's Prequalification Pilot Loan Program, which helps women seeking loans of less than $250,000 complete their loan applications and presents their bankers with an SBA guarantee of the loan. Since its introduction in June 1994 from 16 pilot sites, the Prequalification Program has helped 574 women receive federally guaranteed loans totaling almost $59 million. President Clinton expanded the pilot program to a nationwide basis in October, explaining, "I want to build on a program that is plainly working."

"Two years ago, many bankers would tell women, `Don't even bother to get your loan application package together--it's not worth your time,' " says Sherrye Henry, director of the SBA's Office of Women's Business Ownership. "They still hadn't gotten the message that women business owners were emerging as an extraordinarily strong market, and they weren't putting any time and effort into [lending to women]."

At that point, says Henry, the SBA asked Congress for authorization to establish the Prequalification Program, which offered women business owners a letter of prequalification from the SBA to take with them as they shopped around for loans. Centered not on collateral, but on character, credit and the applicant's ability to repay the loan from earnings, the Prequalification Program not only succeeded in getting women over a large hurdle--it also drew them into the world of lending possibilities.

"A lot of women entered the loan process who otherwise wouldn't even have tried," says Henry, who points out that while some succeeded with the Prequalification Program, many others were redirected to the SBA's Low-Doc and Microloan programs. "It was that extra tool in the arsenal that got more women to focus on how to present themselves to banks."

Though President Clinton has announced that the federal government will make the Prequalification Program available to women in every state in the United States, the process is not quite that simple. "Nationwide access" simply means every SBA district director has the option of offering this program; it does not, however, guarantee that all SBA offices will jump at the chance. "The district director, in consultation with the regional administrator, will decide whether to take on the program," says Henry. "We fully expect every district director to do that, but internally, sometimes it's better to give people choices."

"So far, word-of-mouth reports show people are extremely enthusiastic about the opportunity," says Wendy Goldberg, former press secretary of the SBA. "But it's still too early to tell how many of our district offices are going to participate."

Henry suggests women business owners interested in the program voice their opinions by asking their local SBA offices to adopt the program. "If women business owners made their thoughts known," says Henry, "it would make a big difference."

The Prequalification Program has already made a big difference in the banking landscape. "One of President Clinton's directives to the SBA when he first took office was to increase access to capital for all entrepreneurs," says Goldberg. "This program is filling a need in the market--it's reaching a sector of the economy that has been traditionally underserved."

"Let's put it this way," says Henry. "We have 574 women in America today who would not have gotten loans without this program. This is not to say that the barriers aren't still there for a lot of women, or that all banks have gotten the message, or that we don't have a long road to travel before we make credit as available to women as to men. But we have come a long way in a short amount of time."

For more information, call (800) 8-ASK-SBA.

Capital Improvements

As Julie Weeks, research director for the National Foundation for Women Business Owners (NFWBO), sees it, the relationship between women business owners and bankers four years ago is analogous to the relationship between Dorothy and the Wizard of Oz. "You went through these large doors, down a long hallway," Weeks explains, adding that today, fortunately, "women and bankers treat each other more like equals."

A recent NFWBO study verifies that women entrepreneurs are much more likely to be satisfied with their banking relationships than they were four years ago, as the number of women reporting one or more problems in working with their banks dropped by 15 percent. The number of women who used credit cards as a source of capital was down to 23 percent, and nearly three-quarters of women surveyed were using business earnings to finance their firms.

"There's been a tremendous improvement in access to capital among women-owned businesses," says Weeks. "Between 1992 and 1996, women business owners' use of credit cards dropped by half, their use of business earnings doubled, and their banking relationships improved. Today, men and women are similar in where they get their capital for their businesses, whereas four years ago, they were not at all similar."

Why, after decades of struggles, have women suddenly shot forward in the capital game? "There's been improvement on both sides," says Weeks. "Not only have women business owners become more savvy about these matters and boast businesses that are more stable and mature, but the banking community has experienced an awakening. They've made tremendous efforts to reach out to women business owners and have taken a proactive role in making the relationship better."

In fact, so rosy are the study's findings that Weeks has even managed to find a silver lining in the cloud that used to plague women. About half the men and half the women have bank credit, but they use it for different purposes. Men business owners are more likely to use it for evening their cash flow or for consolidating debt, whereas women are more likely to use it for growing their businesses. "Women don't have debt they have to consolidate," muses Weeks, "because they didn't have the access four years ago that would have allowed them to incur it."

Contact Sources

National Foundation for Women Business Owners, 1100 Wayne Ave., #830, Silver Spring, MD 20910, (301) 495-4975;

Office of Women's Business Ownership, 409 Third St. S.W., Washington, DC 20416;

Small Business Administration, 409 Third St. S.W., Washington, DC 20516, (800) 8-ASK-SBA, (http://www.sba.gov).