At some point in your entrepreneurial journey, you may need to borrow money (Don’t want to borrow? Check out our comprehensive list of small business grants for women). You have a myriad of small business loan options, but what’s the best choice for your business? Here’s our guide to understanding the types of small business loans for women and other financing available to you.
In this article, we’ll cover the various types of funding you can pursue. These resources are for anyone, but we are specifically tailoring our coverage to types of small business loans for women. You might also want to check out our article on business grants for women. Business grants can be a great source of funding that do not add debt to your business.
Small business loans
The first thing that might come to mind when you think of a small business loan is just walking into a bank and applying for a loan. A small business loan is, as the name suggests, money borrowed from a lender specifically to help you run and grow your small business. There are other non-bank sources of financing such as private equity, crowd funding and hedge funds, as fintechs, CDFIs, crowdfunding and microloans, which we’ll discuss later.
A small business loan is basically the same as a loan for anything else, like a house or a car. You have payments each month for a certain period of time. In most cases, you’ll be charged interest. Making your regular payments on time each month will add to your business credit report and increase your business credit score.
Most banks have a business loan department. You can make an appointment with a loan officer and see what your options are. If you already have a relationship with a bank; for example, if you have your personal and/or business accounts already there, that can definitely help.
When you borrow money from a bank, the SBA (Small Business Administration) may guarantee a portion of the loan. This guarantee reduces the risk for the lender and makes them more willing to lend to small businesses that might not otherwise qualify for traditional loans. This can also mean that the loan must be made according to some specific criteria, which can help underserved business segments. Other types of institutions besides banks can make these types of loans, too—keep reading.
What do I need to apply for a small business loan?
When applying for a small business loan, having all the necessary documents organized can streamline the process and increase your chances of approval. Here’s a checklist to help you prepare:
• Government-issued ID: Driver’s license, passport, etc.
• Social Security number
• Proof of residence
• Business plan
• Business tax returns: Past 3 years (if applicable)
• Personal tax returns: Past 3 years
• Business financials: Profit and loss statements, balance sheets, cash flow statements (if applicable)
• Business licenses and permits: If any are required for your specific industry and location
• Business bank statements: Past 3-6 months (if applicable)
• Personal credit report
• Collateral information: If you plan to offer collateral to secure the loan (e.g., equipment, property)
• Business formation documents: Articles of incorporation, LLC agreements, etc. (if applicable)
• Business contracts: Lease agreements, supplier agreements, etc. (if applicable)
• Resumes or professional biographies: Highlighting your experience and qualifications
• Business marketing materials: Brochures, websites, presentations, etc. (optional)
Don’t forget to check your credit scores
A well-prepared entrepreneur knows their numbers, and that includes both personal and business credit! Before applying for any type of financing, take a proactive approach to your credit health.
Just like with personal credit, your business has a credit history and score tracked by Experian. This report paints a picture of your financial habits, including payment history, outstanding debt, and public records. Lenders use this information to assess your creditworthiness and determine loan terms and interest rates.
Although separate from your business credit, your personal score can still influence loan decisions, especially for smaller businesses. Maintain responsible personal credit practices while also monitoring your business credit.
By staying on top of your business and personal credit, you empower yourself to approach lenders with confidence. Remember, a healthy credit score is an investment in your business’s future, paving the way for smoother funding and financial success. Check your business credit report and get your business credit score here.
Alternative sources for small business funding and other resources
Small business loans for women can come from a variety of financial institutions, each with their own criteria, and other types of institutions may not provide monetary support, but can offer many other helpful resources.
Fintechs
“Fintech” stands for Financial Technology and refers to companies that use technology to create innovative financial products and services. In the realm of small business financing, fintechs are shaking things up by offering alternatives to traditional bank loans. Fintechs use digital platforms designed for speed, flexibility, and accessibility. They utilize data-driven algorithms and alternative underwriting methods, opening doors for businesses traditionally overlooked by banks. By leveraging the agility and innovation of fintechs, you may be able to unlock funding opportunities previously out of reach to your business.
CDFIs (Community Development Financial Institutions)
CDFIs are specialized financial institutions that provide financial services to underserved communities and populations. These communities are often overlooked by traditional banks due to various factors like low income or lack of collateral. CDFIs step in to fill this gap by offering loans, investments, and other financial services that can help these communities thrive. CDFIs do not just offer loans; they can also offer technical assistance, financial education, and other support services to help your business succeed. Find a local CDFI in your area.
Business Incubators
Business incubators do not typically offer financial services or products, but they can be an amazing resource for your business, and you as a small business owner. An incubator is designed to nurture and accelerate the growth of early-stage companies and startups. They provide a supportive environment with resources and services to help startups turn their ideas into successful businesses. At an incubator you might find shared office space, mentorship and coaching, workshops and training, and networking opportunities.
Minority Business Development Agency (MBDA) Centers
An MBDA Center is a localized resource center operated under the umbrella of the U.S. Department of Commerce’s Minority Business Development Agency (MBDA). While CDFIs, SBDCs and Incubators all offer support to small businesses, MBDA Centers specifically focus on assisting minority-owned businesses.
Small Business Development Centers (SBDCs)
These can also be called Growth Labs or Incubators as well, such as StartOut’s Growth Lab program for LGBTQ+ small business owners.
MBDA Centers do not directly offer small business loans for women. Their primary function is to provide various resources and support services to help minority-owned businesses grow and succeed.
Crowdfunding
Crowdfunding can be a great option for women-owned businesses seeking alternative funding and building community support. With so many platforms and tools available, it can be daunting to get started, but it also is safer and more secure than ever before. It requires a slightly different marketing approach, since you are appealing directly to ordinary people (not grantors or companies) who you hope will give you small individual donations.
Crowdfunding for a business requires careful planning, execution, and understanding of the potential challenges. Be sure to research different platforms, assess their fees and community, and develop a strong campaign strategy to maximize your chances of success. You may or may not owe taxes on the money you raise, and most platforms have some fees involved. Learn more about crowdfunding for small business owners in a recent Experian podcast.
SBA Microloans
SBA microloans can be a great option for women starting small businesses, especially those lacking access to traditional financing. Microloans can be used for a variety of purposes that help small businesses expand. Use them when you need less than $50,000 to improve your existing small business. For-profit businesses and non-profit childcare centers are eligible. In fact, small business loans for women represent around 57.4% of microloans. Loans are made through intermediary lenders, many of whom actively seek to support women and underrepresented groups through outreach programs and targeted loan products.
Women’s Business Centers
Women’s Business Centers (WBCs) are a nationwide network of resource centers providing training, counseling, and financing assistance to women entrepreneurs at all stages of their business journey. These centers, operating within the U.S. Small Business Administration (SBA) framework, play an important role in leveling the playing field for women entrepreneurs.
You have many options when it comes to financing your small business dreams. If you don’t think you’ll qualify for a traditional loan, check out some of these other options. You may be surprised what all is available to you, especially as a woman and/or a member of a typically underserved community.
