If (only) I had a million dollars: Female entrepreneurs face financial discrimination

Study shows female entrepreneurs fare the worst in raising business capital

Like many women, you may have found yourself dreaming of starting your own business. The thought of being in control of your destiny, your time, and owning your career life is considered by many to be the ultimate freedom and is appealing to so many women. For some, it was the inspirational story of Canadian mother Sandra Wilson - who started The Robeez baby shoe company in the basement of her Vancouver home, then went on to sell it to Stride Rite Corporation for $27.5 million - that resonated and proved that the dream was truly possible. But with inspiration must come investigation, and the results there are not as encouraging.

Indeed, the findings of a new study shine a light on how challenging it can be to make that entrepreneurial dream a reality.

Financial discrimination

The study focused mainly on North America and Europe and was conducted by Noreena Hertz on behalf of The Institute for Public Policy (IPPR), the UK’s leading progressive think tank. The study found clear worldwide evidence that women are facing discrimination within the financial system. The study also cited that discriminatory behaviour was most prevalent against female entrepreneurs requiring capital, as well as pregnant women and women on maternity leave seeking mortgages.

Although the study findings have serious ethical and legal implications, perhaps most concerning is the fact that building an entrepreneurial enterprise and home ownership are two of the most tax-efficient sources of wealth creation for women in Canada, thereby allowing women to take advantage of the $750,000 lifetime super capital gains exemption and the tax-free growth afforded to one’s principal residence.

Female entrepreneurs

The study explained that this discrimination still exists despite claims such as those by David Cameron, Prime Minister of the United Kingdom, that the “only strategy” by which the U.K. economy can grow is through entrepreneurship; or the principle espoused by Barack Obama that entrepreneurs embody the promise of America. As these political words demonstrate, the contribution made by entrepreneurs can have a significant positive impact on an economy, and perhaps more prominently in our current crisis-fuelled environment. So why not more fully support the entreprenhers of the world?

With this in mind, the study points out that “ensuring women are able to be part of this entrepreneur-led recovery, rather than passive recipients of fiscal austerity, is essential.” Yet there are still far fewer female-owned (vs. male-owned) businesses. This is extremely concerning considering, as the study points out, that “entrepreneurship offers a vehicle for women to achieve economic parity.”

The gender financing gap

Although the study explains that women entrepreneurs can outperform their male counterparts (in the US for example, female-led tech start-ups are founded on a third less capital than men, display greater efficiency with that capital, have lower failure rates, and have annual revenues 12% higher than those run by their male-counterparts), they are “stymied from starting or growing their businesses because they find it especially hard to access requisite capital.”

Indeed, one of the greatest challenges female entrepreneurs face is access to capital, especially accessing credit from banks. As reported by The Globe and Mail, the latest data from Industry Canada showed only 16 percent of all small and medium sized businesses are majority owned by women. Moreover, The Globe and Mail also cited the average annual revenue of those firms is roughly $563,000 versus $1.12 million for majority male-owned businesses. This gives further evidence that a lack of access to capital for women entrepreneurs to fund and grow their businesses could well be the culprit.

Research, budget and look for free money

According to Jenifer Bartman, Founder & Principal of Jenifer Bartman Business Advisory Services: “Getting a start-up or early-stage business financed is a challenge in the best of circumstances and some studies have indicated that it can be even more difficult for female entrepreneurs. As a result, it's very important for women to be well prepared when seeking financing, including having a well-developed business strategy and plan in place and experienced advisory resources that can help, as financial partners generally look more favourably on companies with bench strength in this area.”

Jenifer also suggests that entrepreneurs investigate any government grant or cost sharing programs thoroughly, as these programs are designed to support start-up and early-stage businesses, where more traditional financing sources, such as banking institutions, are less likely to be involved.

“These programs can help a company get started and gain a bit of a track record, which can be useful when seeking financing,” says Jenifer.

Her final piece of advice: “It's really important to budget your start-up dollars carefully and make your money last as long as possible. Buy only what you need and leave expensive technology and other capital assets on the shelf. Many of these items are well beyond the needs of early stage businesses and can be obtained later, after sufficient growth has occurred.”

If there’s a will...

Regardless of what this study or any study might find, if you’re inspired to become an entrepreneur, don’t be discouraged. The reality is women are good in business and good for business. In the wise words of Mahatma Gandhi, “Strength does not come from physical capacity. It comes from an indomitable will.”

And with that, girlfriends, use that will - and go forth and prosper!

 

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