To Finance or Not to Finance: That is the Question

Will Your Gender Determine Whether you are a Credit Risk or are Credit Worthy?

Renee Horne          14 March 2011

Need cash for your business?  Well for women it may be your gender that may prohibits your access to finance. According to a recent UK survey by Delta Economics, compared to male counterparts, it seems that female entrepreneurs are rejected for finance as their businesses grow, while it is significantly different in other countries of Europe where men are rejected more than women entrepreneurs.  According to Dr Rebecca Harding, Delta Economics Managing Director, “Nearly 20% of women in the UK have tried to get money but have been turned down for it, compared to 11.5% of the women in Europe”. This year, Delta Economics released the Challenges and Opportunities for Growth and Sustainability report  surveying 1,500 growth oriented entrepreneurs across the UK and Europe between October 2010 and January 2011 (turnovers above £250k or equivalent and trading for between 2 and 10 years). Six countries were included in the study: UK, Germany, France, Italy, Netherlands and Spain. So why are women in the UK turned down for money? Does your gender really determine whether you are credit liability or credit worthy?  

Getting what you want

Harding argues, that of the women who ask for money, “12% in the UK got less than they needed compared to 7% in non-UK Europe. Perhaps as a result of this, only 14% of women entrepreneurs in the UK are looking for money now, although this is more than the figure for non-UK Europe (11%). When non-UK European women do ask, 44% of them get what they need (32% UK) and are predominantly (73%) looking for finance from a bank, (38% UK)”.

Myth or Reality

There is no reason why UK women should be having these difficulties. According to the COGS report, nearly a third of them say their business has grown faster than they expected, despite the downturn (compared to 20% of men). Furthermore, 80% of them are innovative in some way (compared to 75% of men in the UK and 69% of women in Europe)”.  Indeed, within the UK, women employ more people than their male counterparts, and have grown as fast in terms of % turnover growth since they started.  So as UK based Women owned businesses employ more people and their businesses grow faster than their male counterparts, the reasons for the lending data must lie elsewhere.

Women are over-represented in certain sectors such as the service industries, retail and in running so-called ‘lifestyle’ businesses, which rely more on people’s disposable incomes and lifestyle choices. Obviously, in a recession, spending patterns will alter and it is the spending of disposable income on goods and services from these sectors which decreases. Therefore, proportionately, more women will be in those sectors which have suffered more in recession. Lenders recognise this volatility and adjust their lending accordingly. Thus women owned businesses appear to be suffering from a lack of lending but in fact are, at an aggregated level, merely reflecting the volatility of the sectors in which they are over-represented.

It is often quoted that banks discriminate against women at the point of applying for finance. In fact, the banks do not actually collect the information on gender and as most of the process is automated, the gender bias argument carries little weight.

More Questions than Answers?

There are a whole range of additional issues which seem on the face of it to have an equal impact on women entrepreneurs: Some may believe that women as entrepreneurs are dabblers and inexperienced as compared to their male counterparts. Perhaps women are less of risk takers as compared to men? In a recent BBC interview it was discussed that women are less likely to use their house as collateral for a business, but men would do this.  Women fear that if everything goes pear-shaped, then they may not have a roof over their heads.    Indeed women are less likely to enter into business to become wealthy but are often dreamers, thinking they want to make a difference in society? Do banks want idealists and dreamers or hard cold realists?  (Click here to have your say…)