It’s an extraordinary time to be a woman entrepreneur. Women-owned businesses are thriving in the US. Even with the post pandemic challenges, women are increasingly taking steps to run their own businesses. They are generating a significant amount of revenue and forcing the economy to change as well. The annual Biz2Credit Women-Owned Business Study has found that the average annual revenue for women-owned businesses increased by 15.5%, from $391,582 in 2022 to $452,446 in 2023.
A Wells Fargo report too revealed that women-owned businesses are growing faster than those of their male counterparts. But despite generating significant amount of revenue and growing fast, most women-owned businesses are considered small businesses as they employ less than 500 employees. And like most small businesses, women entrepreneurs too face the challenge of accessing funds to grow their businesses.
But fortunately, in the present time, the business lending ecosphere has undergone a significant shift, with women-owned business financing become a major area of focus for most lending institutions – government and private. As more women enter the business world, lending options like business loans based on revenue, aka revenue-based financing, equipment financing, bridge loans, and other solutions will help them access the loan faster.
What is Revenue-Based Financing & Why is It So Popular?
Revenue-based funding makes it easier for small businesses to repay the loan without missing any installments. This is due to the fact that monthly repayment is linked to monthly revenue. If the revenue is high, repayment will be high but if the income is low, then the installment will be directly proportionate to it. This lowers the default risk, if not completely reducing the burden. And that’s why this option is so popular with women-owned businesses, as they often fail to get funding through the traditional route.
Key Benefits of Revenue-Based Financing for Women Entrepreneurs
- Flexibility and Adaptability: It is clear that the repayment flexibility offered by this type of funding is one of the key benefits of this financing. Imagine if you’re in a business where your revenue is dependent on sales or seasonal clearance. A fixed monthly payment might not work for you, especially when you monthly income falls in the low revenue season. That’s where this type of financing works best for women-owned businesses that do not want to be beholden to a fixed repayment amount.
- Lower Risk: As mentioned above, as the repayment is linked to the monthly income, the amount to be paid can be lower or higher. This ensures that the borrower is almost always going to repay. Hence, it reduces the risk of missing instalments for both the lender and the borrower.
- Quick Funding: Unlike traditional loans, revenue-based financing provides a different way to get funds quickly, skipping the long waiting period & tedious funding process.
Impact of Lending Innovations on Women-Owned Business Financing
Due to the rise of digital lending solutions catering to women entrepreneurs, the lending landscape has transformed drastically. Fintech companies are taking advantage of the latest technologies to further modernize the lending application process, making it easier for women-owned businesses to get the funding they need to grow. This has broken down traditional barriers which had prevented women entrepreneurs from getting access to capital before.
How Fintech is Supporting Women-Owned Businesses in US
- Data-Driven Decisions: By evaluating a business’s financial health through data analytics, fintech platforms are providing more personalized lending solutions, specific to the needs of women business owners. Hence, giving apt financial support that women need to succeed in the entrepreneurial world.
- Inclusive Financing: These lending companies now make it possible for women business owners to qualify for loans by offering alternative credit assessments. This is important as it fuels a diverse and vibrant business ecosystem.
The Impact of Revenue-Based Financing on Women-Owned Businesses
Revenue-based financing solution as well as fintech companies have a profound impact on women-owned businesses. Recent studies have shown that innovative financing options have played a significant role in driving the growth and revenue of businesses owned by women in the US.
Take Sarita Ekya’s experience, for example. As the owner of S’Mac, a mac and cheese restaurant chain in New York City with three locations, she had faced many challenges over the years—including the severe disruption that happened to the food industry during the pandemic. When COVID-19 restrictions threatened to close their doors, she had the finances she needed to innovate and make it through, thanks to alternate financing option offered by US lending giant Biz2Credit.
Like Sarita, many women entrepreneurs are taking up different financing options to push for growth and expansion and sometimes even to start their own ventures.
Challenges and Opportunities of Revenue-Based Financing for Women Entrepreneurs
The benefits of business loans based on revenue is very evident. But there are still challenges that many women entrepreneurs face. There is a clear need for education & awareness about how to access and use these innovative financing options, especially among women. So, it is important that there is continued support from both the public and private sectors to eradicate these problems and sustain the growth momentum of women-owned businesses.
To sum it up, business loans based on revenue is changing the way women-owned businesses access funds to grow their companies. This lending system is empowering women entrepreneurs & changing the way we understand business lending. As we move ahead, it is crucial that we support these efforts to ensure that women in business have the tools they need to succeed.