The Challenges of Obtaining Funding for Women- and Minority-Owned Businesses, and How to Solve Them


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It is well known that women-owned and minority-owned businesses lag woefully behind in accessing capital to fund their startups and small businesses. According to the American Express State of Women-Owned Businesses, women own 49% of businesses in the United States, but account for less than 10% of the country’s earned income. This is a staggering and painfully frightening statistic as we enter the 21st century. Some point the finger at the male and his privilege; others blame the financial institutions. Many equate the lack of social capital possessed by women and minorities with fewer friends and family funding at an early stage. This funding can provide a platform to build a business and provide opportunities for a healthier bottom line when seeking additional funding. It could be all or none of these reasons. So, let’s start focusing on the solutions. If 49% of businesses in the United States accessed 49% of available capital, it stands to reason that 100% of our businesses would thrive. Thinking about Pollyanna? Maybe, but it takes money to make money. The more successful all of our businesses, the better the individual finances and the economic development of our cities, which of course has a positive impact on everything else.

Where’s the money anyway?

The first stage of financing is, of course, self-financing. Not everyone has a nest egg ready to hatch the funds needed to invest in a new business. But most fledgling business owners have a circle of friends and family (loosely defined). Make a list of everyone who might consider providing some of those gold dollars to your friends and family. Then, as a business owner, approach these people the same way you would approach a financial institution. Have a basic business plan, financial projections, and a journal of what you’ve invested in the business so far – in time and money. Know what you can afford to give them in return – interest on the money they invest in you or some type of payment in the form of a product or service. The key, however, is that regardless of who the funder is – parent, brother, sister, cousin, neighbor – this is a legitimate business transaction. Treat it as such and show the individual the respect you would show a banker or angel investor. Be prepared, honest and realistic in your time and return projections. Put everything in writing and have all parties sign the documentation. Have a disclaimer for what happens if your business doesn’t see the success you anticipate. Make sure all parties fully understand the risks involved. Don’t make promises you may not be able to keep. A classic opportunity to undersell and oversell. Give realistic projections, but err on the side of more conservative estimates. When you exceed your projections, your friends and family will be thrilled. But if you promise a lot more and you don’t keep your promises, you lose credibility.

The next step is debt-backed financing – anything that requires repayment with interest. This can take many forms – microloans, credit unions, traditional banks, loans from the Small Business Administration (SBA) or home equity lines of credit (HELOC). To be successful down this road, you need to start cultivating those relationships with lenders long before you submit a loan application. Start asking other business owners to introduce you to their lenders. Do some research and see which lending institutions in your area have a history of cultivating relationships and doing business with women and minority-owned businesses. Find local support organizations that exist to support the underrepresented founder and ask them to help you network with those lenders. Organize introductory meetings with lenders, even at the very beginning of your business. I’m optimistic and sincerely believe that lending institutions want to have a mixed portfolio of business owners as clients – they just don’t know them yet. So be bold and get to know them first. Once you’ve cultivated relationships with a few bankers, share your business plan and ask what it will take to get approved for a loan. Lenders will want to see an income history and proof that you can repay the loan with interest within a specified time frame. You might be pleasantly surprised at how quickly they can help you meet their loan requirements. Along the way, lenders will want to share your success. Lenders are human and want to help others, especially those asking for help.

Related: Minority-owned small businesses aren’t getting stimulus loans…

When it gets even harder for women and minorities

The smallest percentage of funding for women and minorities comes from the areas of angel funding and venture capital. These are individual investors who have pooled large sums to invest as a group in qualified companies. Every investor hopes for a big win down the road, which makes the betting process intense. That’s the bad news. The good news is that you may not need these types of financing. Venture capitalists and angel funders are mostly looking for fast-scaling companies. A business where significant funding (think $250,000 to several million) will propel the business into the high-growth category in a short time. What’s great for the founder is the quick money. What’s not so great is that nothing is priceless. Investors will want a significant amount of cash or control, or in some cases, both. A founder must accept that investors can even come and replace you as the leader of the organization. If this is the money path that ultimately suits your business, do your homework. Hire a good lawyer and a certified public accountant (CPA) to protect you during the negotiation process. Also, be aware that the percentage of venture capital funds is even lower for women; only 2% of venture capital is invested in companies founded by women. There is hope on the horizon with more women and minorities becoming investors themselves, but keep your options open. Look for venture capitalists or angel organizations that blindly screen their candidates. Connetic Ventures in Covington, Kentucky is a prime example. Their proprietary product, Wendel, blindly reviews applications. More than 50% of applicants who go through their screening process are women and minorities. Problem solved, right? If the selection process does not indicate race, gender, age, socio-economic status or disabilities, only the idea or concept itself is checked. This is great news for all entrepreneurs and supports the idea that a diverse team is a winning team.

Related: 3 Ways to Support Minority-Owned Businesses

Steps to Secure Funding

  1. Create a solid business plan and start showing progress against that plan.
  2. Build a wide and deep network of people who can help you financially.
  3. Create an advisory board of seasoned and trusted professionals.
  4. Maintain excellent and complete financial records.
  5. Check your credit score and improve it as much as possible.
  6. Effectively market your business in your community.
  7. Write out a fundraising plan for friends and family and start making requests.
  8. Start building relationships with bankers, microcredit organizations, and local small business and entrepreneur support entities. Look for angel and venture funders who have companies in your industry as part of their portfolio.

What can donors do to solve this problem?

Asking donors to solve this problem is where it gets more difficult. Federal banking regulations have very strict truth in lending guidelines. They cannot simply facilitate loans for women and minority groups. We all still need to qualify and have the means to repay the loans. However, lenders can create more incentives and opportunities around building relationships with women and minorities as potential lending clients. Many banks have women’s networks, programs for minority-owned businesses, and are hiring more people to help cultivate those relationships. A strategic focus on the diversity of their customer base is an essential part of the overall solution that lenders can bring to the table. The solution to the funding crisis faced by women and minority-owned businesses is a two-way street. Those with money, bankers and other lenders, must seek out and cultivate relationships; entrepreneurs who need financing must be prepared and confident. Working on both sides of the equation will create an environment where all business owners can access financing equally. This funding will help create more sustainable businesses, provide more jobs for the community and grow our economy. A win-win result for all.

Related: This VC Went From Representing Huge Artists to Funding Women…


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