Women-owned businesses account for less than 5 percent of money borrowed through traditional small business loans, said a Senate Small Business & Entrepreneurship Committee report that was released this Wednesday.
Many female business owners are also missing out on government contract opportunities, according to the same report. In 1994, Congress set a goal of awarding at least 5 percent of government contracts to women-owned businesses. The US government has never met that goal. The closest the federal government have come was in 2012 when the US government awarded 4 percent of government contracts to female business owners.
Considering that women-owned small businesses account for more than 30 percent of small businesses in the United States, these stats seem dismal. If these businesses were able to participate in government and corporate supplier programs, perhaps women would be facing less of a gender gap.
Our popular culture seems to be quickly moving toward gender equality, so why are women-owned small businesses not achieving equality when it comes to traditional loans or government contracts? Why are women-owned small businesses struggling to gain the same financial support that their male counterparts have received from financial institutions and even their own government?
A major reason may be that personal credit scores for women-owned businesses are on average 40 points lower than for male-owned companies. This gap in personal credit is translating to a gap in loan approval rates, a gap in business profits, and a gap in government contracts attained by women-owned companies versus male-owned companies.
Additionally, small firms with low business credit scores may be overlooked not only by other, larger companies, but also by the government. Larger firms see companies with low business credit scores as potential risks, so if your credit scores don’t meet their thresholds, your small business may not be considered to supply products and services to these companies. And while our government has set public goals to give supplier contracts to small businesses, your low business credit score may mean that your firm is ineligible to even bid on these government contracts.
Bad business credit is having a snowball effect, which may be a reason behind the gender gap in small business.
Supplier programs are an excellent way to close the gender gap. America’s big business and federal government are looking to give supplier contracts to small businesses, especially ones owned by women, veterans, or minorities. So, make sure your small business is eligible to bid on these contracts by establishing, building, and monitoring your businesses credit.
Photo Credit: Nguyen Hung Vu, Flickr