If you have practiced business law for a decade or more, you may have experienced a noticeable shift in the demographics of your clients who own small businesses. Between 1972—the year the US Census Bureau began providing data on all woman-owned businesses—and 2019, the number of woman-owned businesses tripled. In recent years, this trend has accelerated. From 2007, the year of the Great Recession, to 2019, the number of woman-owned businesses grew by 58 percent. Forty-two percent of all businesses were woman-owned in 2019, compared to 4.6 percent in 1972. Nearly all (99.9 percent) woman-owned businesses are small businesses. Despite their growth in number and rate of success, woman-owned small businesses experience more challenges, such as less access to financing and slower growth, than businesses owned by men.
In addition, a 2020 report by the Chamber of Commerce revealed that woman-owned businesses have struggled significantly more during the COVID-19 pandemic than businesses owned by men. Although it is beyond the scope of this article, it is important to remember that federal relief, in the form of Paycheck Protection Program loans and tax credits, is still available to business owners as a result of the latest COVID-19 relief legislation.
Attorneys representing female small business owners have an opportunity to further their clients’ success by providing information about funding and certification programs aimed at helping them overcome the hurdles they face and advising them about their eligibility to participate. In addition, attorneys can direct the clients to organizations offering mentoring, education, and other helpful resources.
While there are few, if any, government-backed small business loans or investment programs available exclusively to woman-owned businesses, there are a few attractive options for all businesses that may have more difficulty obtaining traditional financing. The private sector also offers funding opportunities, including some that are specifically targeted at helping woman-owned businesses.
SBA Loans. Although the US Small Business Administration (SBA) does not lend money, it sets guidelines for loans made by intermediary lenders and reduces their risk by guaranteeing a large percentage of the principal of each loan made to a small business. This practice makes it easier for small businesses to get loans and makes it possible for the lender to offer lower interest rates and longer repayment periods. To be eligible to apply for several types of SBA loans, businesses must qualify as “small businesses” under SBA regulations.
An SBA 7(a) loan can be used for almost any business purpose, and qualified borrowers can receive up to $5 million. The terms for repayment are based on the borrower’s ability to repay. Businesses can take up to ten years to repay loans used for working capital or to buy inventory and equipment and up to twenty-five years for loans used to purchase commercial real estate. SBA microloans are available in amounts ranging from $500 to $50,000 and have a repayment term of up to six years. These loans can be used for working capital, purchases of equipment or fixtures, or improvements.
Businesses seeking to purchase commercial real estate, land, or equipment; update their existing facility; or finance new construction can apply for an SBA CDC/504 loan. As part of this loan program, an SBA-licensed certified development company provides 40 percent of the project costs and up to 50 percent comes from a private lender. The small business must provide the remaining 10 percent, or for new businesses, up to an additional 10 percent.
Investment Capital. Small businesses that are already mature and profitable, with sufficient cash flow to make interest payments, may be able to find an investor through a small business investment company (SBIC) licensed by the SBA. SBICs are privately owned companies that borrow funds with an SBA guarantee and use them, along with the SBIC’s own private funds, to invest in certain small businesses through debt, equity, or a combination of the two. To qualify for participation in the program, a business must be a small business as defined by the SBA, a US business (51 percent of the employees and assets must be within the United States), and in an approved industry (farming, real estate, and financing are examples of industries that do not qualify).
In addition, although not appropriate for many small businesses, angel investment is an option for companies seeking to grow quickly. Angel investors invest in businesses at start-up or in very early stages in exchange for equity. Several companies and organizations invest specifically in woman-led businesses.
Crowdfunding. Crowdfunding platforms enable businesses to pitch their ideas to friends, family members, or other investors who can contribute money to a business in exchange for some type of reward—usually the product or service offered by the business—or equity in the business. In contrast to other forms of funding, crowdfunding has been more successful for women than for men for meeting funding goals.
Grants. Though there are few government grants for woman-owned small businesses, private grants such as the Eileen Fisher Women-Owned Business Grant Program, the Cartier Women’s Initiative Awards, the Amber Grants, and the Tory Burch Fellowship fund them exclusively. Grants do not need to be repaid, but the application process can be complex, and grants often include stipulations. Competition for these grants is very stiff, but businesses with innovative ideas or products may benefit from them.
Although the process may be time-consuming, being certified by the SBA as a woman-owned small business (WOSB) can open doors to opportunities in both the private and public sectors. In addition to government purchasing agencies, many public corporations have programs allotting a certain percentage of contracts to woman-owned businesses. Once a business obtains these certifications, the companies and government agencies will send requests for proposals to the certified companies. As discussed below, there are several types of certifications woman-owned businesses can obtain.
Small Business Administration. To be certified as a WOSB, a business must be (a) a small business (the size varies by industry) that is (b) at least 51 percent owned and controlled by female US citizens in which (c) women both manage the business’s day-to-day operations and make long-term business decisions. Businesses certified as WOSB are eligible for consideration for the SBA’s federal contracting program, which allows set-asides for WOSBs in industries where they are underrepresented.
Certain businesses may also qualify for certification as economically disadvantaged (EDWOSB) in the women’s contracting program. To be eligible, the business must meet all the requirements for the women’s contracting program and must be owned and controlled by one or more women (a) whose individual net worth is less than $750,000; (b) who have an average of $350,000 or less in adjusted gross income for the previous three years; and (c) who have $6 million or less in personal assets.
Women’s Business Enterprise National Council (WBENC). A number of corporations, as well as local, state, and federal government entities accept certification as a woman-owned business enterprise (WBE) by the WBENC, which is not limited to small businesses. Businesses that obtain WBENC certification can participate in business fairs, networking, mentoring, education, and capacity development activities and events.
National Women Business Owners Corporation (NWBOC). The NWBOC’s certification criteria for a WBE are similar to those of the WBENC. Certification enables publicly held and large private corporations with programs for doing business with women, as well as local, state, and federal government agencies, to be confident that the business is woman owned. Certified businesses can also participate in the NWBOC’s business development trainings, webinars, mentoring, and conferences.
State and Local Certification. Numerous states and localities have their own WBE certifications that provide opportunities to compete to supply products or services to state or local agencies. Some accept WBE certifications from third-party certifiers such as the WBENC and the NWBOC. Many states have a specifically designed agency that not only helps minority- and woman-owned businesses compete for government contracts but also serves as their advocate as a means of increasing economic development in the state.
Women’s Business Centers
The SBA’s Office of Women’s Business Ownership oversees Women’s Business Centers, whose goal is to help ensure equal opportunities for woman-owned businesses. These centers offer business coaching, workshops, and events to female entrepreneurs . In addition, the centers help women obtain small business loans and other resources designed to assist in planning, launching, managing, and growing their businesses. Further, the centers can provide women with information about other helpful organizations and resources in their region.
National Women’s Business Council
The National Women’s Business Council provides nonpartisan advice to the president, Congress, and the SBA on issues affecting female business owners. Its “Grow Her Business” initiative, launched in 2016, supports woman-owned businesses by providing a catalog of helpful resources for launching and growing a business.
To be successful, woman-owned businesses need the same business law services as other clients, such as guidance regarding business formation, employment agreements, protection for trade secrets and intellectual property, among other issues. By going the extra mile to help female business owners achieve their goals by finding solutions for the challenges they face in starting and growing their businesses, attorneys ensure a lasting attorney-client relationship.