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Investment In Women-Owned Businesses Pays Off: Congress, Spend More Not Less!

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The White House wants to cut $43.2 million — 5% — from the Small Business Administration's (SBA) budget, according to The Washington Post. The reduction would eliminate $12 million in technical assistance grants, drastically cut funding to Community Development Financial Institutions (CDFIs),  and decrease the amount of loan guarantees to small-business owners from $46 million to $45 million.

This will have a disproportionate impact on women-owned businesses, which rely on these programs more than men do. SBA programs have been integral to the growth of women-owned businesses. Ultimately, the decision rests with Congress, according to Jane Campbell, president of  Women Impacting Public Policy (WIPP), a bipartisan coalition of 79 business organizations. WIPP just published its 2017 Economic Blueprint: A Way Forward.

Since the tracking of the numbers began, women have grown from owning 5% of firms in 1972 to 38% in 2016. The 11.3 million women-owned businesses generated $1.6 trillion in revenue and employed 9 million people, according to American Express OPEN 2016 State of Women-owned Businesses. Importantly, since 2007, employment in women-owned businesses has increased by 18%, while employment in men-owned businesses has declined. Women entrepreneurs are an economic force to be reckoned with.

Often capital equals success

Women could do even more if they were not blocked by lack of access to capital. The SBA helps them overcome that blockade so they can create jobs. Capital is a key ingredient to starting and growing a business.

“Women often start their businesses with less because they earn less and have less money to collateralize a loan,” said Susana Martinez-Restrepo, founder of CoreWoman, which conducts research to uncover where gaps between genders are, then addresses those gaps with education.

Community Development Financial Institutions (CDFI) lend to small businesses in disadvantaged communities that wouldn’t be able to get a loan from traditional banks. “Microloans targeting very small, low-income businesses are a powerful way to alleviate poverty through entrepreneurship. They boast low default rates and come with technical assistance that teach important skills to fledgling business owners,” writes Robb Mandelbaum, a small business public policy expert. These loans created 28,000 jobs in 2016, according to Fast Company.  

"The communities that receive financial assistance through the CDFI Fund are precisely the communities President Trump seeks to help, including hollowed out inner-city neighborhoods and economically distressed rural communities," said James R. Klein, President of the CDFI Coalition in a press release. Women are the biggest users of SBA microloans — loans under $50,000 — representing 57% of borrowers.

“CDFIs provide critical help to individuals at the earliest stage of starting their businesses,” said Ashley Wessier, vice president of development and communications  of Accion in New York. “Companies receiving CDFI microloans and technical assistance create an average of 3.7 jobs and have a survival rate of 96% after their first year, according to FIELD at the Aspen Institute’s microTracker tool.”  In general, about 80% of small businesses survive year one.

“What really stunned me was when I read a report by the U.S. Senate Committee on Small Business and Entrepreneurship, which found that women received only 4% of all commercial loan dollars,” said Ann Sullivan, who does government relations for WIPP.

When the Senate Small Business Committee insisted on reports by gender, race and neighborhood, progress started to be made,” said Campbell. In 2015, women made huge strides in receiving SBA-backed loans guaranteed by the federal government. These loans allow lenders to offer low rates to businesses that might not otherwise qualify. In 2015, 36% of loans were to women-owned businesses; up 19 percentage points, according to the SBA Office of Capital Access. Women entrepreneurs need more, not fewer, guaranteed loans from the SBA. It should be noted that the program is paid for by fees paid by the borrower. So the program doesn’t cost taxpayers a dime.  

Re-think credit scores, recommends WIPP. Women earn less than men. They go in and out the workforce because they are caring for children, the elderly or someone who is sick. Traditional credit score metrics about employment history and income may judge women’s reliability and responsibility harshly, commented Campbell. Expand the data used to develop a credit score to include payment histories for utility bills, cable bills, cellphone bills, and public record information (e.g., address history). These measures also show that people are reliable and responsible.

Provide adequate resources for financial and business counseling

Women face a society (and maybe even their own internal voices) that, by and large, says “you can’t do it.” Dreaming big and being bold takes courage. It may also take training, which in addition to building confidence, teaches entrepreneurial know-how and provides access to capital and customers through government contracting.

“There’s no doubt about it. Entrepreneurial training improves performance,” says Martinez-Restrepo. “Evidence finds that entrepreneurship training increases the survival rate of businesses, the revenue generated, the number of people employed and profitability.”

Congress should adequately support organizations such as SBA’s Women’s Business Centers (WBC) and other nonprofits that provide training and access capital. WBCs are especially good at serving women who are entrepreneurs from rural communities and communities of modest social means, commented Campbell. These communities frequently have a dearth of successful women entrepreneurial role models and lack networking connections. .

Of course, Campbell will be advocating on behalf of women entrepreneurs, asking Congress to make investments in entrepreneurs, not cutting the budget. Other women will be advocating, too.  Elizabeth Gore, Dell’s Entrepreneur in Residence and mastermind of the #whatWEneedtosucceed, will be going to Washington in May to share the results of her research.

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