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Access to Capital by Women-Owned Businesses

Access to Capital by High-Growth Women-Owned Businesses

Susan Coleman and Alicia Robb for the National Women’s Business Council

First published August 2014

This report examines factors affecting access to capital for high growth women-owned or women-led firms. Prior research suggests that significant gender differences in firm employment, size, and growth rates persist (Bitler et al., 2001; Fairlie & Robb, 2009; Coleman & Robb, 2009). Data from the United States Census Bureau indicate that less than 30% of businesses are owned by women and only 12% of those firms employ anyone other than the business owner are herself. Only 2 percent have 10 or more employees. Census data indicate women-owned employer firms make up just 16% of employer firms and that only 2 percent of women-owned firms in the United States have revenues in excess of $1 million. (2007 Survey of Business).

Some researchers attribute women’s lower levels of participation in growth-oriented entrepreneurship to gender differences in key resource inputs in the areas of human, social, and financial capital (Carter et al., 1997; Coleman, 2007; Fairlie & Robb, 2009; Menzies et al., 2004; Orser et al., 2006; Robb & Wolken, 2002). Recent studies indicate that women-owned entrepreneurs raise small amounts of capital to finance their firms and are more reliant on personal rather than external sources of financing (Coleman & Robb, 2009; Coleman & Robb, 2010). Within the context of growth-oriented entrepreneurship, this distinction is important, because growth-oriented firms typically require substantial amounts of external capital in the form of both debt and equity. If women entrepreneurs do not seek, or if they are not able to obtain, external capital, their prospects for growing their firms are diminished considerably.

This report provides an overview of issues relating to access to capital for women-owned firms with a particular focus on growth-oriented firms. To date, comparatively few studies have examined the financing issues and strategies of growth-oriented women-owned firms due to a 3 lack of data. More recently, however, the Kauffman Firm Survey (KFS) has furnished a large data set on more than 4,000 U.S. firms launched in 2004. Data on these firms are collected annually to create a panel dataset covering the years 2004-2011. This data set allows us to examine the financing behavior and patterns of growth-oriented women-owned firms over an eight-year timeframe. The KFS provides data on both owner and firm characteristics in addition to motivations, attitudes, perceived barriers, and sources of financing. This level of detail allows us to overcome some of the data limitations of earlier studies that have attempted to explore the theme of access to capital in women-owned firms. This study expands upon our understanding of this topic and should help government officials develop policies directed at supporting women entrepreneurs in their efforts to grow their firms.

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