Access to Finance: Experience from the USA

1. Fostering Gender Equality: Meeting the Entrepreneurship and Microfinance Challenge   Access to Finance: Experience from the USA Tamara Underwood Portfolio Manager Community Capital Resources New York, USA www.ccrhv.org

2. Growth in Women’s Enterprise in the USA • 14% growth in the number of women owned businesses from 1997-2002. • Majority women owned firms in the U.S. accounted for two in five (40.2%) of all businesses in the country.  These firms generated $1.9 trillion in annual sales and employed 12.8 million people nationwide (2006). • Women’s access to commercial credit increased from 20% of women business owners to 34% between 1996 and 2003. • Women business owners’ satisfaction with banking relationships has more than doubled since 1992 (35% satisfied, now 82%). • Small Business Administration backed loans to women increased by 4 times between 1990 and 2000. • Growth in the number of structures focused on supporting women entrepreneurs. • As of 2006, 59% of microloan programme clients in the USA were women. See: National Women’s Business Council, Center for Women’s Business Research

3. Access to Finance: Experience from the USA • How did we get here?

4. Changes in American Women’s Lives • Growing Educational Levels Amongst Women: 1940’s onward • Increasing number of women in the workforce: 1970’s onward • Equal Rights Movement and the Equal Rights Amendment: 1960’s and 1970’s See: Julie Weeks, Director, National Women’s Business Council

5. Government Policy and Action • Equal Credit Opportunity Act of 1974 enabled women to take out credit in their own name • Formation of National Association of Women Business Owners 1975, which lobbied government for research and support for women’s enterprise. • Analysis of women’s enterprise first included in 1977 government business census and carried out every 5 years until 1992. Now integrated into regular survey of business owners and the self-employed conducted by the US Census Bureau. • Research study conducted 1978 to review status of women owned firms. The report, “The Bottom Line: Unequal Enterprise in America” documented barriers faced by women.

6. Government Policy and Action • 1979 President Carter established an Office of Women’s Business Ownership within the US Small Business Administration (SBA) and government tried to get more procurement contracts to women-owned businesses. • Women’s Business Act 1988: • Amended Equal Credit Opportunity Act to include business loans • Women’s Business Center “demonstration sites” set up providing training and access to capital exclusively for women. Today 100 such centers exist across the US. • Established National Women’s Business Council • State and Local: Women’s councils, commissions and state funding from economic development offices

7. Advocacy by Women Business Owners • First census and Women’s Business Act in part result of lobbying by women business owners. • With growing numbers of women’s businesses and their contribution to the economy, their clout is increasing. • There are women’s business associations and networks of women’s business associations that support their members and advocate for women’s enterprise with government, policy makers and the private sector. • Improved data collection and research through US Census Bureau, National Women’s Business Council and Center for Women’s Business Research facilitates this task.

8. Access to Finance: Innovations • Microlending • AEO, Microenterprise Trade Association • Count Me In • Women’s Initiative, San Francisco, California • Community Capital Resources, New York • Banking Sector • Wells Fargo • National City • Key Bank • Venture/Equity Capital • Springboard Enterprises • Golden Seeds • Texas Women’s Ventures Fund Some examples are taken from “Capital Access for Women, Profile and Analysis of US Best Practice Programs,” Ewing Marion Kauffman Foundation, 2006 others are based on discussions with Jason Friedman of Women Entrepreneurs of Baltimore and the panelist’s own experience.

9. Microlending: Setting the Tone • AEO and Microenterprise Standards & Accreditation Programme: • Recognises that there are gender differences in entrepreneurship. Women have different employment histories, assets, access to bank finance, time management issues. • Recognises that microlenders and microenterprise programmes are uniquely placed to help women overcome barriers. • Sets a benchmark for microenterprise support and microlending programmes to reach women at rates at least equivalent to women’s representation in the population if not higher. • These benchmarks set the tone and environment for the industry. Microlenders are evaluated against this benchmark.

10. Microlending On Line • Count Me In: • First on line microloan programme available exclusively to women country-wide • Count Me In provides microloans from $500 to $10,000 to women who are starting or growing their businesses. First loan is $5,000 or less. First loan repaid in 18 months, interest rates 8-15% depending upon risk assessment. Loan decision 6-8 weeks after on-line application received. • Developed a woman-friendly credit scoring system that does not penalise applicants for interrupted employment histories, periods of part-time employment and no or very thin credit history. Attending business courses and having existing home based business improve credit scoring. • Provides on-line business assistance services such as training courses, question and answer services and an online library • Sponsoring “Make Mine a $Million” programme for high growth businesses

11. Wholistic Support: Training, Microlending and Asset Building • Women’s Initiative, California: • Targets low-income women, including minorities, immigrants and welfare recipients. Services provided in English and Spanish. • Women assess their businesses and entrepreneurial readiness through business management and personal development training. • Ongoing support provided through SuccessLink. Graduates at all levels of business are connected with influential women in business, there are seminars and coaching. • Scholarships and stipends for childcare and transportation are available for very low-income women to ensure that no one is turned away for lack of financial resources. • Women's Initiative administers a revolving loan fund disbursing loans ranging from $1000 to $25,000. Began lending in 1990 has disbursed loans totaling over $800,000 and facilitated clients in leveraging an additional $1,800,000 in capital from other lending sources. • Links women with asset building opportunities, including matched savings accounts called Individual Development Accounts (IDAs) where participants double their savings for capital investments in their business.

12. Product Variety and Affordability • Community Capital Resources, NewYork: • Diversity of Loan Programmes and Products: • Peer Lending and Support Programme with step loans starting at $1,000 without collateral or guarantee requirements • Small Business Administration (SBA) Microlender, loans up to $25,000, maximum loan term 5 years • Interest rates from 6% to 10% • 80% of clients are women • Affordability: Empire State interest rate buy down programme for women and minority entrepreneurs • Assists women to overcome cost concerns and thereby encourages better financing levels. • Assists lender to be transparent about interest rates, risk and cost factors whilst being able to cover these through the buy down grant programme • Other Services: • Core Four Business Plan training • Asset Building IDA accounts for business, education, home purchase • Credit Counseling/Financial Literacy Training

13. Banks: The “Gold Standard” • Wells Fargo: • Began Women’s Loan Programme 1995 • To date $25 billion to 700,000 women owned small businesses • From 2003 to 2013 set goal to lend $20 billion to women • Women’s Business Services programme involves outreach and education • Wells Fargo has a national alliance with and provides support to the main women’s business network, National Association of Women Business Owners (NAWBO) with which Wells Fargo undertakes outreach in 23 states • Bank encourages staff in local offices to participate in community events, be speakers, provide materials and reach out to women’s enterprise community

14. Setting Lending Goals • National City: • Women’s loan programme formally established in 2001 but focusing on women’s market for many years • 2004 set a five year goal of lending $3.5 billion to women-owned businesses and within 2 years were over halfway toward that goal • Supports Athena PowerLink which provides counseling and mentoring to growing businesses by experiences business owners • Sponsored Women’s Economic Development Outreach tour in 7 states where the bank operates

15. Staff Assigned to Support Women Applicants • KeyBank: • Key4Women programme began in 1999 which is a marketing outreach and technical assistance programme for women-owned businesses. • Provides a dedicated relationship manager to assist women in their loan applications, financial services and other assistance • Offers educational programmes, sponsors networking events and on-going education • 2005 announced a commitment to lend at least $1billion to women-owned firms by 2008. Target market ranges from self-employed to large corporations in their 13 state region.

16. Venture Capital: Beyond the Male Model • Springboard Enterprises: • A national nonprofit providing training and access to capital for women • Focuses on high growth potential businesses and assists them to develop and present their business to venture capitalists • Offers educational programmes and on-going support for past participants • Supported over 190 business of which 80% are currently operational and five are public companies • Provided over $3 billion in capital to date

17. Angel Investors • Golden Seeds: • Founded in 2005, identifies and invests in women-led ventures with potential to grow into multi-million dollar businesses • Provides strategic business advice to entrepreneurs in early or start-up phase • Invests in a broad range of industries from any part of the US and draws investors from these industries • Individual investors put in $25,000 and above for 5 years. Most businesses raise between $250,000 and $300,000. Investors are women. • Applications are reviewed monthly and 2-3 selected to be presented to the investors. Businesses not selected for presentation receive a written evaluation of their application. • Since its founding in 2005, Golden Seeds has strengthened its commitment to working exclusively with women and with women business leaders/investors.

18. “Patient” Capital • Texas Women’s Ventures Fund: • Unique form of equity capital called “dequity,” not requiring principal payments during the five year investment period. • Loans between $250,000 and $1.5 million • They target industries that are low-tech as well as manufacturing, distribution and wholesale and process services such as printing and healthcare. This broad scope enables them to invest in sectors where women predominate and thus enables the Fund to reach more women. • Distinct from traditional venture capital because the goal is to help the owners retain control of their company while they grow strong enough to attract conventional funds.

19. Conclusions • Enabling environment crucial: • Strategic level government and policy support • Regular data collection, and longitudinal research supported by clear definitions • Strong voice of women entrepreneurs advocating for needs • Leadership from microenterprise trade association, its members and community development financial institutions (cdfi’s)

20. Conclusions • Microlenders • Women only provision and gender aware programmesessential • Provide or link to training and technical assistance providers • Credit scoring and loan processing that evaluate and accept uneven employment, part-time work, low asset base, thin credit histories and positively assess business training, informal experience • Range of lending options, products and guarantee/collateral requirements that take account of business stage, client risk, need for training and support • Affordability initiatives such as interest rate buy down opportunities reduce costs to borrower and lender. Helps women to take on more risk and adequately finance their businesses.

21. Conclusions • Banks • Regional and Local banks better at reaching women even if they do not have specific programmes. Their lending staff have more discretion in decision making, many staff willing to consider loans that do not meet standard qualifications and women’s enterprise support staff are often welcome to meet with loan officers regarding particular applicants. • National banks use credit scoring systems that disadvantage women, there is no flexibility in their loan decision making processes, they tend to have weaker relationships with the community and community groups. Their support often limited to meeting Community Reinvestment Act obligations. • 3 Best Practice Cases are all Regional Banks which: • Set targets for reaching women entrepreneurs • Have staff dedicated to working with women • Greater loan officer decision making authority in order to take account of alternative credit information • Strong links to community programmes

22. Conclusions • Venture and Equity Capital • Women Venture Capital Funds have tended to operate in parallel and use similar methods to traditional male-dominated funds. • These innovative examples are different because: • They undertake outreach, training and support of applicants • Ensure women retain control of their businesses • Develop links to traditional equity investors and women investors • Provide “patient” capital • Focus on industries outside the “high tech” sector

23. Challenges • Complacency: Current administration has made several attempts to roll back SBA, Women’s Business Center and Community Development Financial Institution funding. Practitioners and women’s business owners have lobbied hard to protect these programmes. • Improving Quality and Scaling Up: Too few ‘best practice’ examples. A recent study that sampled experts in the field found only 13 ‘best practice’ programmes serving a majority of women clients, yet there over are 100 Women’s Business Centers and hundreds of microentprise support organisations and community development financial institutions. See “Capital Acces for Women: Profile and Anlaysis of US Best Practice Programs, Ewing Marion Kauffman Foundation, 2006.

24. Challenges • Loss of Regional and Local Banks Through Consolidation: Out of 59 national and regional banks only 3 regional banks have explicit and targeted programmes with lending goals for women. Regional and community banks are disappearing through mergers and acquisitions leaving borrowers to national banks with automated and centralised loan decision making processes. • Insufficient Patient Capital that leaves business owner in control and High Tech focus which may leave out industries and reduce scope for other high growth opportunities

25. Fostering Gender Equality: Meeting the Entrepreneurship and Microfinance Challenge • Thank You! • Tamara Underwood • Community Capital Resources • tunderwood@ccrhv.org • www.ccrhv.org