Women founded more than 150,000 companies in 2022, and the number of female entrepreneurs is on the rise. If you’re one of them, you might be looking for the best funding options for your business to help it grow. Here’s what you need to know.
Best types of small business financing for female entrepreneurs
There are a number of different finance options to consider if you’re a female business owner. These include:
Unsecured business loans
Unsecured business loans don’t require you to use an asset as security and can be a good option for new businesses. Depending on the lender and your credit history, you might be able to borrow up to £500,000 with an unsecured business loan. You’ll usually need to repay it within five years.
Be aware that while you won’t need to provide an asset as collateral, you might be asked to sign a personal guarantee. This means that you will be personally responsible for repaying the loan if your business is unable to.
Start-up business loans
Government-backed start-up business loans are designed to help new businesses launch and grow. To qualify, you must be aged 18 or over, live in the UK and have, or plan to start, a UK-based business that’s been trading for less than 36 months.
You can apply for a loan of between £500 and £25,000 and this needs to be repaid within 1 to 5 years. There are no fees for arranging the loan or paying it back early.
On top of the loan, you’ll also benefit from support with writing business plans and cash flow forecasts, plus 12 months of free mentoring.
Start Up Loans, which is part of the British Business Bank, says that almost 40% of loans it has approved have gone to female founders.
Secured business loans
Secured business loans require you to use an asset, such as property or machinery, as collateral. This means that should you be unable to repay your loan, the lender has the right to repossess the asset and sell it to recoup its money.
Because of this effective guarantee, you can usually borrow a larger sum of money over a longer term. You might also be offered a better interest rate compared to an unsecured business loan.
Merchant cash advance
A merchant cash advance is another way to borrow funds. It best suits businesses that accept debit and credit card payments from customers. You’ll receive a lump sum of cash upfront from the lender and then repay it as a fixed percentage of your card sales.
Merchant cash advances can be easier to get accepted for than traditional business loans. They could be a suitable option if you have a limited credit history or few business assets.
Business line of credit
A business line of credit is a flexible way of borrowing the funds you need. Rather than being given a lump sum, you’ll be able to draw funds as and when you need them, up to your set credit limit. You can usually choose how much you want to repay and when, rather than paying fixed monthly instalments. You’ll only pay interest on the amount you’ve borrowed.
A business line of credit can be a good option if you want to boost business cash flow every now and then.
Business credit cards
Business credit cards are another flexible way to borrow money. Again, you can borrow up to your credit limit as and when you need to and then repay the amount borrowed in flexible monthly repayments. Interest is usually added to these repayments.
Your credit limit will usually depend on your credit history and trading history, as well as your business turnover. Business credit cards can help you to pay invoices, travel expenses or cover employee expenses. Some might also include perks such as cashback on your spending or no fees for spending abroad.
Why are small business loans for women important?
According to the 2023 Rose Review, 50% of female business leaders and entrepreneurs have reported finding it difficult to access funding and investment. This compares to 40% of their male equivalents.
As a result, many female entrepreneurs are missing out on essential funding to help their business grow and succeed.
But if lenders are more prepared to level the playing field and offer more funding to female-owned businesses, this could help add more to the economy, close the gender pay gap, create employment opportunities and improve innovation across a range of sectors. In fact, it’s thought that £250 billion could be added to the UK economy if women started and scaled new businesses at the same rate as men.
Encouraging women to apply for business loans might also encourage more women to start their own businesses.
How satisfied are female borrowers with their business loan provider, compared to male borrowers?
Response
Male
Female
Very satisfied
55.56%
47.75%
Reasonably satisfied
36.46%
39.64%
Neither satisfied nor dissatisfied
5.90%
11.71%
Moderately dissatisfied
1.74%
0.00%
Highly dissatisfied
0.35%
0.90%
Source: Finder survey by OnePoll of 400 Brits
What can female entrepreneurs use a business loan for?
Business loans can be used for a wide range of purposes. For example, you could:
Buy new equipment and stock: You could use the funds to help pay for the equipment and raw materials you need or invest in new software and digital tools.
Expand your premises: As a growing business, you might need to extend your premises or even buy a new one.
Pay for marketing and advertising: Doing this in the right way can help attract new customers.
Invest in your staff: A loan could enable you to hire new staff or pay for training for existing employees.
Pros and cons of business loans
Pros
Can enable you to grow and expand your business
Range of finance options available, depending on what you’re looking for
Start-up loans provide access to valuable business support
Cons
The best interest rates require a good credit and trading history
Fees might apply in some cases
You might need to use an asset as security or sign a personal guarantee
Business loans for women with bad credit
If you have a bad credit history, this doesn’t automatically mean you won’t be accepted for a business loan. But it does mean you might have fewer options available to you. You can also expect to pay a higher interest rate and be offered a smaller sum of money.
It can be worth looking for a business loan with a specialist online lender in this situation, as some of these will offer business loans specifically for those with a lower credit score. But they’ll want to see that your company is growing and that you can afford your loan repayments.
Choosing a secured business loan or signing a personal guarantee can also increase your chances of getting accepted for a business loan as it reduces the risk for the lender.
Eligibility criteria
Eligibility criteria for a business loan will vary depending on the lender. But most will require you to be at least 18 years old and live in the UK. Your business will need to be UK based too.
Some lenders might ask that you’ve been trading for a set time and have a minimum annual turnover requirement. Be sure to check carefully before you apply.
How to apply for a small business loan for women
You can often apply for a small business loan by filling in an online application form. Typically you’ll be asked to provide the following:
Your personal details, including name, address, date of birth and contact details.
Your business details, including its trading name.
Your business’ monthly turnover.
The amount you want to borrow.
You’ll usually be asked to provide certain documents, such as your business bank statements from the last 6 months and your financial accounts. You might also be asked to supply balance sheets, a business plan and details of any business assets being used as security.
Things to consider before you apply
Before applying for a business loan, keep the following points in mind:
Do you meet the eligibility criteria? Check it carefully because there’s no point applying if you don’t qualify.
How much can you afford to repay each month? It’s crucial that your monthly repayments are manageable, otherwise you could end up in a spiral of debt you can’t get out of.
Is the interest rate competitive? Be sure to shop around and compare rates carefully before applying. Check whether the rate is fixed or variable.
Do you need to provide security? Whether you need to use an asset as collateral or sign a personal guarantee, make sure you understand the risks before agreeing to anything.
Are there any fees? Some loans charge arrangement fees for setting the loan up, while others will charge you if you pay back the loan early.
Have you considered all options? As well as traditional business loans that give you a lump sum of cash, there are more flexible options such as a business line of credit or business credit card. Be sure to consider them all before applying.
Bottom line
If you’re a woman who has recently set up her own business or is thinking about it, there are a number of different financing options to consider that can help get your plans off the ground. Be sure to compare them carefully, thinking about which option works best for you and whether you’ll meet the eligibility criteria.
Frequently asked questions
Government backed loans are available, but they’re not usually solely targeted towards women. Start Up Loans are one example, while the Recovery Loan Scheme is another.
There are a number of business grants available for women starting a business, and the big advantage is that unlike a loan, these funds don’t need to be repaid. Take a look at the following:
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Rachel Wait is a freelance journalist and has been writing about personal finance for more than a decade, covering everything from insurance to mortgages. She has written for a range of personal finance websites and national newspapers, including The Observer, The Mail on Sunday, The Sun and the Evening Standard. Rachel is a keen baker in her spare time. See full bio
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