Why Are Women Business Owners So Reluctant to Raise Their Debt Ceilings?

The U.S. debt ceiling has been making news for weeks (really months), but women business owners have debt ceilings of their own that could be holding their business growth back, the recently released PNC Women Business Owners Outlook survey reveals.

Overall, women business owners are optimistic. The survey found that almost half (48 percent) of U.S. women business owners believe their own companies’ sales will grow in the next six months, and 37 percent expect profits to rise. Six in 10 say their businesses are meeting or exceeding their sales expectations, and eight in 10 are optimistic about their businesses’ future prospects.

woman guarding money

Women business owners have reason to feel good. According to the survey, in the most recent 10-year period, the number of women-owned businesses in the U.S. grew by 44 percent (twice as fast as men-owned firms) and, women-owned firms added 500,000 new jobs.

Despite these figures, just 41 percent of the women entrepreneurs surveyed plan to make capital investments in the next six months. Nor are they eager to take on new outside financing. Instead, PNC found, most women business owners are funding their businesses with credit cards and personal savings. Nearly 60 percent use a business credit card and 44 percent are using personal or family savings to finance business growth.

We all know it’s tough to get financing these days, but I think these statistics reflect ongoing issues among women business owners just as much as they reflect the state of small business lending. Many women entrepreneurs are reluctant to take on outside financing—whether because they want to keep their businesses manageable, don’t want to owe anyone anything, or don’t believe they could succeed at getting financing from banks, angels or venture capitalists.

And while bootstrapping your business is sometimes a smart idea (and sometimes it’s your only option), as your company matures failing to seek outside financing can hamstring your business and keep it from becoming a real player in your industry.

There’s also the irony that relying solely on your personal capital can put your personal finances at risk, explains Beth Marcello, director of Women’s Business Development at PNC, in announcing the survey results.:

“While women business owners often describe themselves as being debt-averse, those who rely strictly on savings and credit cards leave few options to weather downturns without cashing in personal assets or taking a hit to their personal credit history.”

PNC found that women business owners rely on an average of 2.7 sources of money to fund their businesses. Additional sources of capital include a line of credit from a financial institution (38 percent), personal credit card (34 percent) and a business loan from a financial institution (26 percent). If you’re not already doing so, Marcello says it’s crucial for women business owners to establish separate business credit and use it wisely. As you do so, keep in mind the four C’s of credit:

1. Capacity: What is your company’s borrowing history and track record of repayment? How much debt can your company handle?

2. Personal Capital: Good news for women who have bootstrapped their success: While banks don’t want you to put all of your personal assets on the line, having some level of personal capital invested in the business makes bankers more inclined to lend to you.

3. Collateral: Banks will want you to pledge business collateral, which can include real estate, inventory or accounts receivable.

4. Character: Banks are more likely to lend to business owners who have good credentials and references. Make sure your business credit report is clean and make all your payments on time to keep your reputation spotless.

If you have plans for expansion—as many women business owners in the PNC survey do—now is the time to start expanding your scope beyond personal sources of capital and laying the groundwork for outside financing.

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Rieva Lesonsky Rieva Lesonsky is a Columnist for Small Business Trends covering employment, retail trends and women in business. She is CEO of GrowBiz Media, a media company that helps entrepreneurs start and grow their businesses. Visit her blog, SmallBizDaily, to get the scoop on business trends and free TrendCast reports.

10 Reactions
  1. How do failure rates between women-owned businesses compare to male-owned businesses? My suspicion is that women fail less and this may be because they are managing less risk in the form of outside debt.

  2. Robert,

    Actually the opposite is true.

    Scott Shane’s book, Illusions of Entrepreneurship, says the research shows that “across all economic sectors, new businesses led by women perform WORSE on almost every performance measure – survival, sales, growth, employment, and income – than new businesses led by men.” (pg 130)

    According to Shane, this difference is not accounted for by inability to access capital, or lack of education (more educated than men), or lack of experience (equal, according to Panel Study of Entrep. Dynamics), but simply because they aren’t as manically driven by financial performance, but more by building a lifestyle that works for them. (pg. 134)

    • Of course, Chuck, there’s a danger in averages and making sweeping generalizations for any conclusion, when it comes to gender.

      I’ve never bought into averages or comparisons with others of the same gender. I set my own vision and goals, and strive to achieve them.

  3. Thank you Robert. I would say that some women tend to be more risk averse than men when it comes to building businesses.

    The Center for Womens’ Business Research has some good stats on women business owners. Of course that’s research about women who own businesses, and not who are pursuing lifestyle options. Sometimes it’s hard to believe it’s 2011.

  4. Anita,

    Good point. We invest way too much time trying to explain what we do by looking at our external differences when in fact the overwhelming majority of research shows that success and failure factors are internal – things inside each of us – notably vision, commitment, and speed of execution.

    We would all do ourselves a favor to stop trying to discover what external influence is allowing me to declare myself a victim, and start focusing more on our own efforts. As has been said many times, 90% of life is what you make happen and 10% is what happens to you.

    The fact is circumstances don’t make me who I am. How I respond to them does.


    Can you elaborate on “sometimes it’s hard to believe it’s 2011”? Thx.

  5. Thanks, Rieva.

    As much as my wife would give me crap, (because I’m generalizing) if she read the next statement, I feel that it’s true;

    Most women are very conservative when it comes to taking on risk.

    It’s that simple.

    The Franchise King®

  6. Well, Joel. I would agree with your wife. It’s very dangerous to generalize. I would say that as a rule women are more risk-averse than men, however I would not say that MOST women are very conservative when it comes to taking risk.

    And in fact, most of the women business owners I know (and you know many of them: Anita, Carol Roth, Gini Dietrich, are gung-ho about growing their businesses.

  7. Joel,

    LOL – I was thinking the same thing as Rieva today and thought you should hear it from a guy. I know a lot of women who are more risk tolerant than their SO’s or others. And even though, as Rieva says, women are more risk-averse than men, I don’t think we can say whether that is cultural or DNA. Sounds like a study someone could bury themselves in for years and waste a lot of time on.

    I would be more willing right now to tie it to background – I respond to the world the way I was brought up. Which brings me to the hope that someday men will be as comfortable as SOME women in building a business that doesn’t need to grow big, but simply supports a lifestyle that works for them. Women are far ahead in that category right now, as Shane’s research reports.