Why is business funding for women still an issue?

Steph Jouppien
Steph Jouppien
happy female entrepreneur

The past 10 years have seen a boom in business startups. Much of the growth has occurred within the last five years with female entrepreneurs at the forefront of this movement. Fundera reports that today there are 114% more female-led businesses than 20 years ago. Sadly, obtaining capital remains harder for female founders than their male counterparts.

According to a report by Harvard Business Review, women-led startups received only 2.3% of V.C. funding in 2020. With almost 12M female-owned firms worldwide, it may come as a shock that a mere 25% of female entrepreneurs seek funding for their businesses. 

Why does business funding remain a problem for women today? 

Most of us have a hidden bias we fail to acknowledge. You may have heard that we're more likely to like and trust those similar to us. According to Forbes, 80% of venture capitalists are male. Although not scientifically proven, it’s highly likely that gender bias plays a big role in these men funding other men, overlooking the female entrepreneurs also seeking funding.

Alexandra Shadrow, co-founder and CEO of Relovv notes:

“The biases are palpable. Women need way more proof of concept and traction than their male counterparts in order to convince VCs to invest.”

There are a wide variety of alternative lending models available on the market, each with different pros and cons. Let’s take a look at some of these models so you can see which might best fit your business and risk tolerance level. 

Peer-to-peer (P2P) lending


P2P lending, social sharing, and crowdlending, are all ways of accessing funds from private investors rather than your typical suit-and-tie bank. Not to be confused with VC funders or angel investors (which we touch on later), businesses that use P2P models tend to take small amounts of capital from multiple peers, rather than work with one large sum from a single funder.

Pros 

You can:

  • Access funds, no matter your credit score. 
  • Bypass traditional banks.
  • Avoid legislation and paperwork.

Cons

You have:

  • To pay out profits to your investors.
  • Less cash to reinvest and scale.
  • A raised risk of liability if you default on payments. 
  • An increased amount of record-keeping

Crowdfunding and personal connections

You've probably heard of Kickstarter, GoFundMe, and Patreon—easy funding platforms that connect potential funders to different businesses and initiatives. These funds can come from people you know personally, as well as anonymous donors on the internet who believe in your cause.

Pros

You:

  • Get your funds through an easy-to-use platform.
  • Keep any cash you raise without having to pay it back.
  • Protect your credit score, which isn’t affected.  

Cons

You:

  • Cannot alter your crowdfunding campaigns.
  • Get your earned profits taxed by the government as well as the crowdfunding platform. 
  • Open yourself to scams and fraud, which occur regularly in crowdfunding.
  • Have to put yourself out there and ask for money.

Bank loans

One of the more traditional means of receiving funds is borrowing from a bank and repaying your loan with an interest rate tacked on top. Bank loans can be either secured or unsecured. Secured loans require collateral (an asset like your house) in the event that you don’t pay back your loan. With an unsecured loan, you don’t put up an asset if you default on payments. Just brace yourself for the sticker-shock that comes with a higher interest rate. 

Pros

  • Make predictable monthly repayments.
  • Build a relationship and credit with your bank.
  • Pay for whatever you’d like with the funds received.

Cons

It:

  • Impacts your credit score if not repaid.
  • Comes with a lengthy and drawn-out process full of paperwork and long wait times.
  • Requires you prove business viability. For a new business owner, a pitch can be intimidating. 
  • Requires assets, collateral, or sky-high interest fees. 

Venture capital (VC) or angel investors

VC firms give money to startups, small businesses, or entrepreneurs in exchange for equity in the startup, small business, or entrepreneur’s future ventures. It’s important to note that if you hand over a majority stake in your business to a VC firm, you lose control of your business. 

Angel investors are high net-worth individuals, often entrepreneurs like yourself. They offer financial assistance in exchange for equity, but don't necessarily have to sit on your board of directors.

There are similarities to both, for instance, they look for competitive products with wide-ranging market potential, and for good reason. If you were to invest in someone else’s business, wouldn’t you want to make sure it’s highly-profitable and scalable so you make more money back? 

If you’re planning on going the investor route, it’s imperative you have a convincing business pitch. While this may be a breeze for some, it can be especially difficult for founders who lack confidence or experience pitching.

Pros:

  • Investors take on any losses themselves. 
  • Paying back the loan is not required.
  • Access capital that could skyrocket your success.
  • Network and meet with other high-level businesspeople. 

Cons

You:

  • May forfeit control of your company.
  • Need to pay out profits to investors.
  • Have limits on the amount of cash you can reinvest in your business.
  • Are judged based on your pitch, so if you can't argue for your products and competitiveness, receiving funding will be an uphill battle. 

Business line of credit or business credit cards

Both are refillable forms of capital for things like ads, inventory, and R&D, that allow you to scale and grow. A line of credit is a fixed amount of money that can be accessed as needed. Lines of credit tend to be used for short periods of time on large investments, whereas a business credit card has a fixed limit which is usually paid off and then used for ongoing purchases.

Pros

You:

  • Get a quick cash injection.
  • Get credit more easily (as opposed to pitching investors or begging the bank).
  • Can apply capital funds where you need it most in your business.
  • Get to scale and grow your business quickly. 

Cons

You:

  • Need to beware of hidden or high fees and charges.
  • May have difficulty applying and getting funding, depending on your credit score.
  • Can have your credit score negatively impacted if payments are missed.

Bootstrapping


One of the more common methods of building a new business is bootstrapping. Bootstrapping is when you pay for everything yourself with personal savings. It is a popular option for businesses that want to save money, so they can reinvest on cash saved for future purchases. A business that pursues bootstrapping will likely look for other means of cost savings like using free versions of software, and delaying hiring talent.

Pros

You:

  • Are your own boss, with no one telling you what to do or how to make financial decisions.
  • Own your business entirely.
  • Can spend your money on whatever you'd like. 

Cons

It:

  • Takes a lot of time, money, and energy.
  • Can be easy to run out of funds in a short timeframe.
  • Can easily lead to debt.
  • Doesn’t come with someone tohelp guide or support your professional and financial decisions. 

Inventory financing

Inventory financing is refillable capital for your inventory spend, so that you can keep your customers orders fulfilled. It’s seen as an asset based loan that can also be used for machinery, equipment or paying invoices to suppliers.

Pros

It:

  • Is capital designed to boost your inventory.
  • Allows you to expand your product offerings.
  • Ensures you don’t run out of stock and miss out on sales.
  • Keeps your customers satisfied and coming back for more. 

Cons

It’s:

  • Not always necessary for all business types. 

Clearco: A data-driven approach to funding female-led businesses


Today traditional financing options remain an issue for female founders. Gender bias, confidence in pitching, and being taken seriously, stand in the way of women receiving adequate funding to create what may be world-changing businesses. 

For founders struggling to get capital, it's worth looking into alternative financing models as well as possibly leveraging more than one source of cash.

Clearco provides data-centered capital by analyzing your business performance metrics like your sales data and marketing spend. This model has allowed us to fund 8X more female-led businesses than traditional lending models.

Female founders who’ve used our fast capital to scale quickly include Piccolina, Nourished, and MenoLabs

Take 2 minutes to see if you qualify for a cash advance to fund explosive business growth. Connect your accounts to see if you qualify. 

Thinking about taking equity-free funding for your business?

See how much you qualify for with no commitment.

GET FUNDED TODAY