Financial inequality: Why is it still hard for women to get business loans?

Yet data reveals that women continue to face greater adversity when it comes to raising funding, with loans approved for female business owners nearly one third less than for their male counterparts.

Why is there still a long way to go to having gender equality in the lending market?

A recent Financial Times report showed that UK executive targets for women have been met three years ahead of schedule, with two out of five board seats at FTSE 350 companies now occupied by women.

The annual FTSE Women Leaders Review found 40.2 per cent of directors at the UK’s largest listed companies were women last year, surpassing the voluntary threshold set for 2025, and up from just 9.5 per cent 11 years ago.

With only 21 female Chief Executives within this group, there is clearly some way to go.

But a positive step in the right direction by corporate UK.

So how about women business owners?

Figures from the Rose Review Progress Report 2023, an independent review led by the CEO of NatWest Group, Alison Rose, showed that female founders started a record number of UK companies last year with more than 150,000 enterprises created, more than twice the number of 2018.

That’s one-fifth of all businesses in the UK run by women in 2022.

These figures both come at a time of important UK-government backed initiatives boosting practical and financial support for female entrepreneurs and setting targets for more female senior executives and C-level representation.

The Investing in Women Code, which was established by the UK Treasury in July 2019 after a Treasury report found that female entrepreneurs receive 157 times less funding than male businesses, provides access to tools, resources and finance from the financial services sector to promote inclusiveness and the advancement of female business owners.

The code continues to commit signatories to adopt best practices that will benefit female entrepreneurs. There are now 190 signatories, up from 134 in 2022, including 133 venture capital firms, representing £1tn of assets under management.

Outside of government, The UK Business Angels Association is championing female entrepreneurs through their ‘Women Backing Women’ campaign, targeting a pool of female angel investors representing 30% of the total number of UK angels by 2030.

As Denise Wilson, chief executive of the FTSE Women Leaders Review, put it:
“The hushed, water-cooler conversation on the lack of women from yesteryear has evolved into a core and critical business topic.”

Yet the reality is still that UK female entrepreneurs continue to battle for a fair share of funding.

It’s a familiar story for most with data showing women-led companies find it harder to raise initial funds than those started by men and face further hurdles convincing investors to back their growth.

Half of women entrepreneurs have found access to funding and investment hard in the past 12 months compared with 40% of their male counterparts. And 44% of women expected fundraising to become more difficult in the coming months.

The challenges were even more pronounced for black women, with more than two thirds of black female business owners finding the process challenging.

So, why it is hard for women to get business loans?

There is an improving pipeline of female-led start-ups, many of whom are disrupters and innovators in their field. Government and investor-led capital funding initiatives are being established to support start-ups and SMEs looking to refinance.

However, there is the long-standing view, supported by the data, demonstrating that traditional money lending methods follow the conventional practices of favouring financing business owned by men.

Most lending businesses are run by men, and the lending models created by bank lenders are also predominately male-led.

So, is it as simple as male business owners are taken more seriously than women?

Some women business owners called out being viewed as “part-timers” because they have children or perceived as less serious professionals than their male counterparts.

For them the inequality is prevalent.

However, with 150,000 new businesses being created by female founders in 2022 alone, in 3-5 years’ time, with the right backing and scaling, these businesses will be SMEs looking for funding for growth, acquisitions and other strategic milestones.

How can this not be an attractive proposition to lenders?

After all, women tend to be reliable borrowers, with a lower insolvency rate than their male counterparts. They are also more risk-averse, considering long term implications as more important than potential short-term gains. They are less likely to overstate their financial or strategic position.

So, what is the lending market doing?

Several small lenders are now acknowledging the under representation and difficulty faced by female entrepreneurs, offering better interest rates, and loan terms for female borrowers for loans in the £1-500k space.

But debt lenders must make more strides to better support female business owners and ensure gender discrimination (conscious or unconscious) is not a consideration when reviewing a loan application.

SME Capital COO, Kate Kennedy, said:

“It is clear that women are a key growth engine of UK SMEs but continue to face inequality when it comes to finding funding support. SME Capital is committed to backing women in business, making sure gender is never a consideration when we speak to businesses about funding.

SME Capital are focused on lending to great businesses and business owners who have the skills, experience, and resilience, all supported by a solid management team."

If you are a female business owner and would like to discuss funding options for your business, please feel free to get in touch.

We are experts in SME lending, ensuring every customised loan we make is designed with the goal of becoming a business’s long-term finance partner.

About SME Capital

SME Capital was founded to support the growing number of SMEs who face difficulty or frustration in accessing capital through traditional methods. We understand the importance of real and trusted relationships in the SME lending market and have dedicated Regional Directors based across the UK. By combining traditional lending expertise with the latest in data analytics, we are supporting established UK SMEs with their long-term objectives and business ambitions.