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8 Great Sources of Financing for Women Starting a Business

Fledgling female-owned firms should look into these options — and steer clear of two others

By Kerry Hannon

Four years ago, Linda Waitkus quit her job as store manager for a Bloomingdale’s near Washington, D.C., to open Great Dogs of Great Falls, an 1,800-square-foot pet shop with grooming services in Great Falls, Va.

When I stopped by to interview her recently, I was impressed to discover that Waitkus, now 57, made all the right moves for launching a new venture, starting with a rock-solid business plan. But what really impressed me is this: She had saved enough money outside of her retirement accounts to finance the startup.

Great Dogs started turning a profit in its first year, and Waitkus has been able to pay herself a salary. (I contributed to the cause by purchasing some treats and marrowbones for my Lab, Zena, when I popped in.)

Women have been starting businesses like mad in recent years, and at a higher rate than men, according to a report from American Express OPEN Forum. Between 1997 and 2012, the number of women-owned firms increased by 54 percent, a rate 1.5 times the national average.

(MORE: What You'll Need for a Small Business Loan)

But starting a business may be even harder for women than for men, as explained in a recent article by Susan Coleman and Alicia Robb. Authors of a new book released by the Kaufmann Foundation, A Rising Tide: Financial Strategies for Women-Owned Firms, Coleman and Robb contend that businesses run by women face hurdles that aren't encountered by men.

For instance, they report, women seeking first-year financing to get a business off the ground receive about 80 percent less capital than men. This echoes what I've heard from female entrepreneurs I know, who've told me that finding money to finance their companies was the hardest part of their launches.

With that in mind, here are eight resources women should consider if they want to raise cash for a fledgling business — and two to avoid at all costs:

Personal savings Most startups, like Waitkus’s pet shop, are financed with an entrepreneur's own money. But as I wrote in my Next Avenue blog post, "When It Comes to Money, the Deck is Stacked Against Women," women tend to earn less than men, which means they often don't have a full cupboard to tap.

Loans from banks and credit unions These are the chief sources of financing for women-owned firms. Fortunately, women are no longer more likely to be rejected for these loans than men, according to Coleman and Robb’s research.

If you plan to apply for a bank or credit union loan, I recommend you have a solid business plan, a stellar credit record and an excellent credit score (720 or higher). You might want to try a bank where you've been a longtime customer or one that is familiar with your company's field. For more tips, read the Next Avenue article, "How to Get the Business Loan You Want" by Steve Bloom, a counselor with SCORE, the nonprofit small business adviser affiliated with the U.S. Small Business Administration.

An SBA-guaranteed bank loan can keep your down payment and monthly payments low. To find a bank offering one of these loans, check the Local Resources section of the SBA's website as well as the site's loans and grants search tool.

Home equity credit lines or loans Lenders typically let you borrow 75 to 80 percent of your home's value, minus the amount of money you still owe on the mortgage. With a home-equity line, you receive the money in increments, rather than the lump sum you get with a home equity loan. The interest rate on home equity credit lines is typically lower than on loans, which you receive as a lump sum.

According to, the average rate for a $30,000 home equity credit line is 4.58 percent; for a $30,000 home equity loan, it's 5.71 percent. Just be certain that you'll be able to repay this kind of financing — your house is on the line.

(MORE: How to Get the Business Loan You Want)

Relatives and friends Family members and pals often lend money interest free or at a low rate of, say, 3.5 percent. Be sure to get legal advice and create a binding contract if you want to finance your business this way. You'll want to put the loan's terms in writing to avoid any misunderstanding about repayment dates and interest.

Angel investors and venture capital firms These financing sources provide money in exchange for equity or fractional ownership. However, they’re typically swamped by requests and extremely careful with their money.

Compared with men, only a tiny percentage of women rely on this kind of financing, according to Coleman and Robb. One possible explanation, the authors say, is the difference between the types of firms typically started by each sex. Women-owned firms tend to be less growth-oriented and heavily represented in the retail and service sectors. Equity investors prefer growth-oriented sectors, like technology and bioscience.

Another reason women have often find equity-financing windows shut is that don't belong to the key networks that provide this financing. Traditionally, the authors note, angel investing and venture capital fields are closely knit, difficult to penetrate and dominated by men.

Crowdfunding websites Financing for the incredibly successful Pebble smartwatch was ramped up via Kickstarter, a crowdfunding website that entrepreneurs use to find people who'll invest small amounts of money in tech projects or creative endeavors like music or video games. Pebble's founders hoped to raise $100,000 through Kickstarter; they ended up bringing in more than $10 million.

With Kickstarter, listing your project is free. You simply post a description of the project, including a video, your target dollar amount and a deadline. Then you send a mass e-mail to family, friends and colleagues, asking them to help and also to share your financing invitation with others. When you reach your goal, Kickstarter takes 5 percent, and you pay 3 to 5 percent to’s credit-card service. If you don’t raise the money by the deadline, all pledges are canceled.


Similar crowdfunding sites, like Rock the Post, Indiegogo and AngelList, can also connect you with angel investors.

In the past, small businesses couldn’t sell shares of their company through crowdfunding sites because that violated Securities and Exchange Commission rules. But this spring, Congress passed the JOBS Act, which will allow such equity-based crowdfunding sometime next year, when the SEC's new rules kick in.

(For more about this law, read NextAvenue small-business blogger Gwen Moran’s post "What the New Crowdfunding Law Means to Small Business Owners.")

Economic development programs You’ll need to do some legwork for this type of financing, but it could be well worth your time. As Moran blogged in "A Great Way to Give Your Small Business an Edge," getting your firm certified as a woman-owned business can help you qualify for money that's only available to companies with that designation. Certification can also help you land government and big-business clients.

Some corporations offer these types of programs. For example, Michelin North America, based in Greenville, S.C., has provided $1 million in low-interest financing — loans range from $10,000 to $100,000 — to certain businesses, including women-owned firms, in parts of South Carolina.

Local economic development agencies, such as Rockville Economic Development in Maryland, also award cash prizes for new, female business owners. Check the SBA's online directory and contact the office in your area to see if any money is available for women-owned businesses.

Grant programs for women The SBA operates a network of nearly 100 Women's Business Centers around the country. They provide state, local and private grant information to women eager to start for-profit or nonprofit businesses. lists information on more than 1,000 federal grant programs; many are specifically for women-owned businesses. is the federal government's site for entrepreneurs looking for short-term microloans and small business loans. Search this site for info on all programs available to women business owners in your state.

2 Financing Sources to Avoid

And now the two sources of money you don't want to use:

Credit cards Avoid using plastic at all costs. Most cards carry double-digit interest rates, which is an outlandish price to pay for starting a business. Also, it's very easy to get yourself into trouble this way, given the financial ups and downs of a new venture.

Retirement savings Trust me, you don't want to dip into your 401(k) and IRA. Not only will you owe income taxes by taking money out, you'll lose the tax-deferred compounding and, if you're younger than 59½, you'll owe Internal Revenue Service withdrawal penalties. Worst of all, you’ll highjack your future financial security. Please don't do that. No business is worth it.

Photogtaph of Kerry Hannon
Kerry Hannon is the author of Great Pajama Jobs: Your Complete Guide to Working From Home. She has covered personal finance, retirement and careers for The New York Times, Forbes, Money, U.S. News & World Report and USA Today, among others. She is the author of more than a dozen books including Never Too Old to Get Rich: The Entrepreneur's Guide to Starting a Business Mid-Life, Money Confidence: Really Smart Financial Moves for Newly Single Women and What's Next? Finding Your Passion and Your Dream Job in Your Forties, Fifties and Beyond. Her website is Follow her on Twitter @kerryhannon. Read More
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