On the heels of the FUND Community Institute (FUND CI) landmark study on the role of Women in CDFIs, The Wisdom Fund partnered with FUND CI to explore why women small business owners access capital at lower rates than their male counter parts. The question is complex and influenced by a range of factors, such as socioeconomic characteristics of the borrower; type, size and track record of the small business; risk preferences of both borrowers and lenders and more. To explore the issue, FUND CI analyzed data from CDFIs with a track record of lending to small businesses as well as a literature review to better understand trends related to lending to women entrepreneurs. A full report of the findings can be found on FUND CI’s website here.
The Wisdom Fund was created to bring new thinking, experimentation and sustainable solutions to drive wealth creations for low-income women in the United States by changing traditional lending practices. Wisdom Fund works directly with non-profit, CDFI lenders to provide capital to push the boundaries of traditional lending practices and usher in a new era of opportunity for low-income women. Learn more about the Wisdom Fund here.
As part of the partnership, FUND collected and analyzed data from a cohort of CDFIs to determine the baseline of lending activity. The baseline is intended to serve as a guidepost for activity as the Wisdom Fund begins to invest in CDFI members to support new initiatives to increase lending to women business owners.
Each lender in the cohort is an established CDFI with a track record of providing small business loans and related development services to underserved individuals and communities. Reported lending represented $49.0MM in loans in the organizations’ most recent fiscal years. Highlights from cohort data include:
- 38% of loans originated in the most recent fiscal year, both in terms of number and dollar of loans, went to female borrowers. There was limited variation in percentage of loans to women based on type of loan or whether the borrower was an existing borrower with the CDFI.
- While female borrowers made up 38% of new loans, they represented 50% of development services recipients in the most recent fiscal year. This suggests some drop off between technical assistance receipt and receiving a loan, or other variation in the development services and loan recipient populations based on gender.
- Loans to female borrower had slightly lower interest rates (7.2%) compared to overall loans (7.5%). Loans also had a slighty longer average term of 55.8 months, compared to 54.2 months.
- Female borrowers had the same average credit score as new borrowers overall.
To help inform the findings of from cohort data, FUND reviewed available research and identified the following highlights:
- There are several structural barriers that can limit women’s access to credit. A higher proportion of small business owners rely on personal credit to grow and support their businesses. Given women’s, and particularly women of colors’, lower incomes compared to men, this can limit the financial bases of their business.
- Women-owned startups also typically have half the equity of male-owned startups.
- Female entrepreneurs tend to be less likely to apply for funding, though are less likely to be turned down when they do apply, according to a Gallup poll.
FUND CI’s partnership with the Wisdom Fund supports its mission to build thriving communities through research, training and facilitation of opportunities for knowledge sharing. To learn more about FUND CI’s work as a nonprofit think tank conducting independent studies, partner projects, and commissioned research, visit our website at http://www.fundconsulting.com/fund-ci/.