The Federal Reserve Banks of New York and Kansas City today issued the 2016 Small Business Credit Survey: Report on Women-Owned Firms, the fifth in a series of reports that examine the results of an annual survey of small business owners.
“Women-owned businesses are a critical part of the small business sector, yet it’s well-known that they have historically struggled with lower growth rates. More needs to be done to understand why,” said Claire Kramer Mills, New York Fed assistant vice president and community affairs officer. “This report advances our understanding of the causes and implications of this gender gap, which can inform efforts to help high-potential women-owned firms meet their financing needs and flourish.”
“The number of women-owned firms is growing significantly faster than their male-owned peers, however, they face different sets of challenges in terms of operating and growing,” said Dell Gines, senior community affairs advisor at the Kansas City Fed. “This report shares key insights into the credit needs and challenges of this growing group of entrepreneurs.”
The Report focuses on small businesses that had majority female ownership—51% or more ownership by women—and employees in 2016 (hereafter “women-owned firms”). It compares these firms’ experiences with those of majority men-owned firms (“men-owned firms”).
It found that women-owned firms were more likely to stay small in terms of revenue and employment, struggle with profitability and be concentrated in less capital-intensive industries. In financing these small businesses, women-owned firms were more likely to face growth-related financial challenges, hold smaller amounts of debt and have unsecured debt. Though women- and men- owned firms applied for credit at similar rates, women-owned firms were less successful in obtaining financing. Among non-applicants, women-owned firms were more often discouraged from applying and less likely to have sufficient credit.
These findings are important to the U.S. macroeconomy because small employer firms are critical to U.S. job creation and women-owned firms are a growing share of the sector. According to the U.S. Census Bureau, the share of employment by women-owned firms increased by about 20% between 2007 and 2015, while the share of employment by all small businesses declined by about 4%.
Key findings, which can be found in the Report’s executive summary include:
Performance and Expectations
- Women-owned firms were more likely to stay small—only 22% had at least $1 million in annual revenues in 2016, compared to 36% of men-owned firms.
- Women-owned firms more often had lower revenues, fewer employees and more profitability challenges at all ages.
- Women-owned firms typically were concentrated in less capital-intensive industries—40% focused on education, healthcare, professional services and real estate.
- Women-owned firms were notably more optimistic about future revenue, and had similar expectations about employee growth.
Financing Demand and Challenges
- Women-owned firms were more likely to operate at a loss (31% vs. 25% of men-owned firms) and to report medium/high credit risk (41% vs. 33% of men-owned firms).
- Women-owned firms were more likely to experience financial challenges in the previous year, and those challenges were more likely to be growth-related.
- Women-owned firms typically had smaller debt balances and were less likely to use collateral to secure their debt.
- Women-owned firms applied for credit at a similar rate but nonapplicants were more likely to be discouraged, or to not apply for financing for fear of being turned down (22% vs. 15% of men-owned firms).
Financing Sources, Success and Satisfaction
- Credit cards were a commonly used financing tool for both women- and men-owned firms. However, women-owned firms are less likely to hold a variety of debt and equity types.
- Among recent credit applicants, women-owned firms applied for business loans at a similar rate, but were significantly less likely to receive the loans (47% vs. 61% of men-owned firms). Women-owned firms were more often approved for SBA loans/lines of credit than men-owned firms (61% vs. 50%).
- Women-owned firms were more likely to face a funding gap (64% vs 56% of men-owned firms). Even among firms with low-credit risk, women-owned firms were less likely to receive all of the funds they requested (48% received all funds vs. 57% of low-credit risk men-owned firms).
- Women-owned applicants were more likely to apply to large banks than small banks (49% vs. 40%), but were notably more likely to be approved at small banks compared to large banks (67% vs. 50%). They also reported the highest satisfaction levels at small banks (80%).
Additional analysis of the 2016 Small Business Credit Survey was released earlier this week. This report took an in-depth look into including microbusinesses and the self-employed (nonemployer firms).
About the Small Business Credit Survey (Survey)
The Survey collects information about business performance, financing needs and choices and borrowing experiences of firms with fewer than 500 employees. Responses to the Survey provide insight into the dynamics behind aggregate lending trends and about noteworthy segments of small businesses. The results are weighted to reflect the full population of small businesses. The Survey is not a random sample; therefore, results should be analyzed with awareness of potential methodological biases.
The Survey was launched in 2014 through an effort that merged the regional surveys conducted by several Federal Reserve Banks. The 2016 Survey is the first iteration that was conducted on a national scale with involvement from all 12 Federal Reserve Banks and input collected across all 50 states and the District of Columbia. The 2016 Survey collected 15,991 responses in total. 10,303 these responses were from employer firms, 2,159 of which were startup firms, and 2,880 were women-owned firms.
Betsy Bourassa, New York Federal Reserve
Bill Medley, Kansas City Federal Reserve