As small business owners, we all want our businesses to survive and thrive. Sometimes, that means making personal sacrifices. But a new study  by Experian reveals that women business owners may be making too many sacrifices when it comes to their personal finances — and it’s putting their personal credit ratings at risk.
The study of both male and female business owners examined both business and personal credit data, then analyzed the differences between the credit profiles of the men and women entrepreneurs. Here’s what they found:
- Women business owners have lower incomes than male entrepreneurs. Just 17.4 percent have a personal income of $125,000 or more, compared to 21.2 percent of men.
- Women business owners have an average business credit score of 34 (out of 100, with 100 being the least risk); men business owners average 35.
- Women business owners’ consumer credit scores average 689; male business owners’ consumer credit scores average 699.
What’s behind the discrepancy? Women entrepreneurs in this study were most likely to own and operate businesses in these six industries:
- Business Services
- Beauty Shops
- Retail Stores
- Personal Services
- Building Maintenance
Men were most likely to own and operate businesses in these six industries:
- General Contracting
- Business Services
- Real Estate
- Motion Picture Distribution
- Retail Stores
Although there is a lot of overlap here, general contracting and real estate businesses may be more likely to generate larger sales than the typical businesses run by women. Women-owned businesses typically generate lower revenues: Only 14.5 percent have sales of more than $500,000, while 24 percent of men-owned businesses do.
In addition, women-owned businesses pay their bills 8.4 days past due, while male-owned businesses pay theirs an average of 8.1 days past due.
Women’s more limited access to commercial credit is reflected in the study. Just 18.5 percent of women-owned businesses have one or more open commercial trade accounts, while 22 percent of men-owned businesses do.
As a result, women are more likely to turn to their personal credit to finance business operation and growth. Over 25 percent of women entrepreneurs have 10 to 19 tradelines open on their personal credit files; just 17.5 percent of male business owners do.
Women are also more likely than men to have delinquent personal credit accounts. In the last 24 months, women entrepreneurs had an average of 1.3 personal credit accounts become 90 or more days past due, compared to an average of 0.9 for male entrepreneurs.
What gives? When women business owners can’t get access to capital and credit they need through commercial channels, they’re forced to turn to their personal credit to keep their businesses running. This can be risky, affecting your ability to pay off personal obligations and ultimately hurting your personal and business credit rating.
What can you do if you find yourself in this bind?
- Do everything you can to cut costs so you don’t need as much capital.
- Look into alternative sources of financing that rely less on your business credit rating. Invoice-based financing or equipment financing, for example, allow you to turn receivables or planned equipment purchases into “collateral” for loans that can help you grow.
- Seek loans or investments from friends and family to avoid hurting your personal credit rating. Be sure to treat them as you would any type of loan or investment, including issuing stock and drawing up loan documents.
- If you’re launching a new product or service, consider crowdfunding your growth via peer-to-peer sites such as Kickstarter.
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