Am I the only one struggling to get business funding? — Lionesses of Africa

by Linda Zuze (PhD)

Mbali had taken longer than planned to leave her corporate job and pursue a lifelong dream of running a catering business. There was always a reason to put it off. She was too young. She needed the financial security. She would be crazy to walk away from a steady salary when so many people depended on her. Finally, she took the leap. She never looked back. Mbali’s business was growing so quickly that she needed larger premises and additional staff. There was just one problem. She couldn’t pin down the funding that she desperately needed and she had used up all of her personal savings. She had tried everything – from traditional loans, to credit card applications and even equity financing. Nobody seemed as excited about her ideas as she was.  

Mbali’s experience is sadly all too common for women entrepreneurs and it’s not just start-ups who face an uphill battle. Women with businesses of different sizes and across a range of sectors struggle to access the capital that they need, when they need it. The International Finance Corporation (IFC) reports that women-owned companies account for one-third of the global SME-finance gap even though their businesses tend to be smaller. According to the African Development Bank, women on the African continent need about $42 billion of business financing.

The problem is widespread. A cross-cutting study of more than 30 members of the OECD showed that even in the richest and most gender-equal countries in the world, women are using personal funds for their businesses more often than bank loans and men are accessing bank loans at higher rates. Women who took part in the Lioness Data South African Women Entrepreneurs Job Creators Survey are facing serious credit constraints. Only 29% of respondents had applied for external finance in the 12 months preceding the survey. Owners of smaller businesses (in terms of revenue) were less likely to apply for funding and to receive the funding that they needed. 

One reason why women entrepreneurs are reluctant to apply for financing is that they have become discouraged borrowers. They don’t apply for finance because they believe that their applications will be rejected. So, are women despairing for nothing? Should we just try harder? Actually, there’s a lot of hard evidence to show that the financial sector judges women businesses differently in some subtle and not-so-subtle ways. Take the questions that investors pose to men and women. Studies show that biases in the framing of questions influence how men and women describe their businesses and, ultimately, success rates in getting financial backing. 

Even the language used to evaluate funding proposals can be riddled with stereotypes. A Swedish study looked at the language used by venture capitalists to describe male and female applicants. It revealed that men were painted in a more favourable light. The picture seems to improve when women are involved in funding decisions, according to one study.

And here’s one that took me by surprise. Can the spread of digital banking inadvertently hurt women’s chances of getting funded? Apparently, it can. If women entrepreneurs have the opportunity to meet with a banker in person, they have a much better chance of overcoming gender stereotypes and getting funding approval than if they are assessed remotely. For all its benefits, a growth in online banking could make it harder for women to build relationships with their bankers, which could hurt their chances of getting funded. 

It’s true that the financing odds are stacked up against women entrepreneurs but there is a lot of good news to keep in mind as well. Firstly, we now have solid evidence to show that it’s objectively harder for women to get financing for their businesses. Good data makes it easier to address discriminatory lending practices and tougher to ignore women when they talk about how difficult it is to secure financing. Knowing that we are held to a higher standard should motivate us to become better prepared, ask more questions, and learn from each funding experience. 

Tackling funding challenges on your own is overwhelming and tapping into networks can make all the difference. Lionesses of Africa’s podcast series on getting funding is a great place to start. So let’s stay the course, remind ourselves of how far we’ve come, and refuse to give up.