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Is Yours a Woman-Owned Business? Get Your Fair Share of Available Loans. #1 of 6 tips: If you see the phrase 'total cost of capital,' run the other way.

By Evan Singer Edited by Dan Bova

Opinions expressed by Entrepreneur contributors are their own.


With the presidential election looming, job creation is a hot topic. Where will new jobs come from? According to research by the Guardian Life Small Business Research Institute, female small business owners will create 5 million to 5.5 million new jobs across the United States by 2018.

In fact, a recent report from the U.S. Senate Committee on Small Business and Entrepreneurship showed that women-owned businesses now account for nearly 30 percent of all businesses in America.

Related: 11 Grants for Women-Owned Businesses You Need to Know About

Why should everyone care? For starters, the National Women's Business Council has released some data on how women business owners are contributing to the U.S. economy:

  • Between 1997 and 2014, when the number of businesses in the United States increased by 47 percent, the number of women-owned firms increased by 68 percent -- a rate 1.5 times the national average.
  • More than 9.4 million firms are owned by women, employing nearly 7.9 million people and generating $1.5 trillion in sales as of 2015.

Those are impressive numbers. However, the news for female entrepreneurs is not all good: Only 4 percent of all small business loans go to women-owned businesses, for instance: That's just $1 of every $23. Small Business Administration (SBA) loans made to female entrepreneurs have a higher number: 17 percent; however, that's still much lower than the 30 percent of total businesses actually owned by women.

With SBA loans being the gold standard to fund small businesses, this latter statistic is troubling. SBA loans -- and other types of small business loans -- help strengthen businesses with funds that fuel growth initiatives like increased marketing, equipment purchases, additional employees or refinancing existing high-interest debt.

It's important for individual businesses and the overall economy that women-owned businesses have the same access to capital as those owned by men.

So, why are women business owners getting less than their fair share? It's been reported that women have lower credit scores. However, data from Nav, an online business credit manager, disputes this claim, showing that the business credit scores of male- and female-owned businesses are actually quite similar.

Related: Why Women Entrepreneurs Have a Harder Time Finding Funding

It's possible, then, that gender bias -- as irrational and unjustifiable as it is -- could be one issue keeping women from securing affordable funds. If so, the use of technology in the application, underwriting and processing of loans may eliminate some of that bias. Here at SmartBiz Loans, with our online SBA marketplace and technology platform, we are funding approximately 30 percent of all our loans to women-owned businesses.

Female entrepreneurs can, should and are getting their fair share of our affordable 6.25 percent-to-7.25 percent-interest-rate and 10-year-term SBA loans. So, in the end, such online lending platforms may be the best option for women seeking business funds.

However, a word of caution: It's easy to be taken in by a lending website's bells and whistles, or an aggressive marketing campaign such as, "rates as low as" or loan products that do not even indicate their APR. As the saying goes, "If it sounds too good to be true..."

Here are some essential best practices for women small business owners seeking funding online:

1. Look for long-terms/low rates

Women-owned businesses need to be on the lookout for well-regarded online lenders who offer solid financial options. That means longer-term loan products with low interest rates that equal the smallest monthly payments. Expensive short-term loans can spell disaster for cash flow and even drive an entrepreneur out of business.

Beware of a new comparison tool called the "total cost of capital" of a loan. This tool makes loans with the shortest terms look the best, when in fact they typically have the highest APRs. Instead, SBA loans have long terms and are a great option if you have good credit and sufficient cash flow to support the low monthly payments.

2. Demand transparency.

It's important that women demand transparency when working with an online lender. That means that the APR of the loan is disclosed up front, along with all fees. In general, it's a good idea to examine online lenders closely. Look up reviews from reputable publications as well as customer comments, from sites like TrustPilot.

3. Seek outside advice.

Another great strategy is to work with the Small Business Administration directly. The SBA provides lots of resources, including women's business centers, to guide small business owners through the borrowing process. A good connection to make is one with a SCORE programmentor who has successfully acquired SBA funding.

4. Prepare.

Joyce M. Rosenberg, an Associated Press business writer, explored the issue of women and small business loans in depth. She spoke with a commercial loan officer for a credit union in South Florida who said this about some women loan seekers: "They don't take the time to prepare paperwork. They don't have the proper documents, financial statements."

If true, this may well be a strike against women working with an online lender as well as as bricks and mortar one. Those who move swiftly from prequalification to funding will have all of their paperwork in order before they start working with a lender. If you're one of these borrowers, determine what documents you'll need to have on hand to prepare for the loan process, by searching the FAQ on your online lenders' sites.

5. Avoid 'teaser' rates and demand to know a loan's APR.

Attractive "teaser rates" are a popular ploy by unscrupulous lenders to hook borrowers in. Though promising a low rate, teaser rates either expire or are misleading, as most small businesses don't qualify for them.

There is no magic formula for calculating an APR; it's made up of the interest rate, fees and term of the loan. Your lender should disclose what your APR is. From a comparison standpoint, even expensive cash-advance providers can calculate an estimated APR. This way, small businesses can compare different loan options.

And if you're a small business owner, don't let hard-sell marketing fool you into taking two, three or four cash advances either. Your real APR, if you are pulled into renewing your initial cash advance before it is fully paid off, can skyrocket to well over 100 percent.

6. Look for great customer service.

Have you ever had a customer-service issue that wasn't addressed properly? To say it's frustrating is an understatement. So, when shopping for lenders, put "stellar customer service" on your checklist. Having a dedicated professional explain the loan product and help you through the process is crucial. Having dedicated "relationship managers" is a great first step.

Finally, remember that a loan should meet your company's needs. Look at your cash flow and business plan to determine the loan amount you should ask for to reach your specific goals. Laura Tabsharani, a founder of Epic Global Talent, in California, says, "As long as you do the right thing with finances, your dreams can turn into reality."

Related: 4 Financing Tips for Female Entrepreneurs

Adds Tabsharani: "Taking the leap to become a women entrepreneur was not easy, but life is way better on the other side. Just do it!"

Evan Singer

CEO of SmartBiz

Evan Singer has broad experience in financial services and consumer industries. He is the President of SmartBiz, a venture backed financial technology company. He has built a career around successfully building teams and launching and growing new brands and services. He has held leadership positions as Chief Revenue Officer at Milton’s Baking, President at Purity Organic, and General Manager at Align Technology. He started his career at Procter & Gamble, and graduated with honors from Stanford University.

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