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With women launching businesses at nearly twice the rate of men, banks and other lenders are finally getting the message. They're rolling out the welcome mat with credit programs tailored to women entrepreneurs. "Bankers realized that if they weren't going to make loans, they were going to lose a very important market," says Sherrye Henry, the associate administrator for the Small Business Administration's Office of Women's Business Ownership.
Large national and regional banks, such as Wells Fargo, First Union, and Fleet, have earmarked billions of dollars to lend to women-owned businesses. But make no mistake, the loan process is still the same regardless of gender. Each applicant must satisfy the credit qualifications to get a loan.
Entrepreneurs need to consider a number of things when applying for a loan. To find out more, I recently spoke with the SBA's Henry and with Sharon Hadary, executive director of the National Foundation of Women Business Owners, about the most important aspects of the loan process. Here are edited excerpts from our conversations.
Q: What are some of the challenges that are unique to women entrepreneurs seeking credit?
Hadary: Often, women don't have a credit history. The mortgage, car loans, and credit cards are in the husband's name. Women also don't have the same willingness to take on risk and pledge personal assets for collateral as their male counterparts. Women aren't as willing to put up the house as collateral.
And until recently, women business owners haven't always been taken seriously by the banks. They were often put with the most inexperienced loan officer, who wasn't knowledgeable enough to help them strengthen their loan applications to become creditworthy or suggest that the bank take a chance on a character loan [where loan requirements are less stringent based of strength of character]. That's why these programs tailored to women business owners are so important.
Q: What's the first thing someone needs to think about when considering a loan?
Henry: Whether you're a startup or an existing business, you must have a good personal-credit history. Loan programs look very closely at this. While blemishes such as slow payments or collections don't automatically disqualify you, it may make it more difficult to qualify. If you've had significant problems in the past 10 years, you'll need to do some credit repair. In that case, contact credit- and debt-counseling services, such as those at the SBA's Women's Business Center, for help.
Women tend to have bad credit for reasons that are often out of their control. For example, divorced women are often penalized for bad credit or a bankruptcy that was the ex-husband's responsibility. Also, make sure your personal and business income taxes are paid up.
Hadary: Don't wait until you need a loan to go to a bank. It's important to build up a banking relationship so that the institution knows you and your needs when it comes time to apply. Have your local bank handle your business-banking needs, so that you can establish a record with them. From the beginning of your business, keep good financial records. The bank will want to see three years of records, such as sources of revenues and the company's profitability.
Q: What else do banks want to see before they loan money?
Henry: If it's a startup, they want the business owner to personally guarantee the loan by putting up their personal assets as collateral. If it's an ongoing business, some banks will also accept the company's cash flow as collateral. Banks also like to see that you have some of your own money, anywhere from 10% to 30%, in the business.
Banks will look to see whether or not your business is capable of paying off the loan. Get help with creating your bank package. You don't want to be turned down because you haven't done your homework. If one bank turns you down, the other banks will know it.
Hadary: Remember that when you go to a bank, you're bringing them a business proposition. They aren't a charitable organization. They loan money because they want to make money. So you need to show them how their money will be protected, how you'll use their money, and how you'll pay them back.
Q: Any final tips?
Hadary: Shop around at several different banks. Some banks are more receptive to service and retail businesses, which make up the bulk of women-owned companies, than other banks. Some banks are better with businesses that have hard assets. Look around for those banks that have the best deals -- not only the best rate. Make sure you get good terms -- such as how long the loan is for, [and that it] will be enough money to meet your needs.
ONLINE RESOURCES: www.fleet.com/busb.html
Includes comprehensive list of resources for women entrepreneurs.
www.sba.gov/advo/stats/lending
An online report from the SBA's Office of Advocacy that ranks the top small-business lenders. While not gender-specific, if the bank supports small business, it supports women-owned businesses.
www.sba.gov/womeninbusiness/
The SBA's Office of Women's Business Ownership includes a business quiz to determine whether you're creditworthy, and it highlights different lending programs and other services to help women entrepreneurs.
Gutner is Hers columnist for Business Week. She offers advice twice a month for BW Online
The story doesn't end here: Talk about women entrepreneurs and loans at our Hers forum
EDITED BY BETH BELTON
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