Access to capital and terms of credit: A comparison of men- and women- owned small businesses

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This article compares access to capital for men- and women-owned small businesses using data from the 1993 National Survey of Small Business Finances. Findings reveal that womenowned firms are less likely to use external financing as a source of capital. It does not appear, however, that lenders discriminate against women on the basis of gender in terms of access to

Headnote

capital. A second part of this study examines the terms under which women obtain credit to determine whether they are at a relative disadvantage from that perspective. Findings reveal that womenowned firms paid higher interest rates than men for their most recent loans. In addition, women-owned service firms were more likely to put up collateral than men-owned service firms.

Small businesses are an important source of economic growth and job creation. According to the U.S. Small Business Administration, there were over 22 million small businesses in 1994 employing 53 percent of the workforce (Facts About Small Business 1997). Small firms account for 50 percent of the gross domestic product and the majority of new jobs created. In terms of innovation, it is estimated that small firms produce twice as many product innovations per employee as large firms, creating new products, services, lines of business, and industries.

Access to capital is a critical issue for small businesses. Without sufficient capital, small firms are unable to develop new products and services or grow to meet demand. Insufficient liquidity is a frequently cited cause of small business failure. Unlike larger publicly held firms, small firms typically cannot access the traditional capital markets (Ang 1991; Weinberg 1994). Instead, small firms are heavily dependent on bank loans, trade credit, and "informal" sources of financing such as personal savings, credit cards, home equity loans, and loans from family and friends (Ang 1992; Ang, Lin, and Tyler 1995; Berger and Udell 1995; Binks and Ennew 1996; Cole and Wolken 1996; Petersen and Rajan 1994).

Small businesses owned by women represent an increasingly important part of the small business sector.The National Women's Business Council (1996) estimates that women-owned businesses represent one-third of all businesses, and that the number of women-owned firms is growing twice as fast as firms in total. The same study estimates that womenowned businesses employ almost six million...