Women Entrepreneurs: Debt Financing and Banking Relationships
Madill, Judith J., Riding, Allan L., Haines, George H., Jr., Journal of Small Business and Entrepreneurship
Women-owned businesses are integral to accomplishing national and regional goals of economic welfare and job creation. Over 2.6 million people were employed by businesses with at least one women owner in 2001 and women entrepreneurs brought in combined annual revenues of $407 billion in 2000, representing 43% of Canada's Gross Domestic Product (GDP) (Government of Canada, 2004). Women hold, on average, majority ownership in approximately 18% of firms in Canada, with a high of 21% in the province of Quebec and a low of 9% in Manitoba and Saskatchewan (Government of Canada, 2004).
Further, women-owned businesses are increasing in number and hold considerable untapped potential. Industry Canada reports that between 1991 and 2001, women's selfemployment expanded by 43%, compared to 21% growth for men (Government of Canada, 2004). According to the Prime Minister's Task Force on Women Entrepreneurs (2003: 25-26):
* Since 1976, the average annual growth rate of self-employment for women has been 5.3%, compared with 2.2% for men.
* Between 1981 and 2001, the number of women entrepreneurs in Canada increased 208%, compared with a 38% increase for men.
* In 2000, women held at least 50% ownership in 31% of knowledge-based industry (KBI) firms and 31% of manufacturing firms.
While these indicators show the very positive aspects of the rapid growth and economic impact of women-owned entrepreneurial businesses, there are a number of indicators that may be viewed as flags for caution. Recent data show that women-owned SMEs are approximately half the size of SMEs owned by men: average annual sales revenues of women-owned firms in 2000 was $311,289, compared with an average of $654,294 in sales for firms owned by men (Government of Canada, 2004). In addition, the Task Force notes: "women tend to own firms in slower growth and higher risk sectors, such as retail and service, in which access to financing is relatively more challenging" (2003: 26).
Financing is a central challenge facing all entrepreneurs. Without sufficient levels of finance, firms' ability to achieve their growth potential will be compromised. To the extent that women-owned firms are systematically disadvantaged with respect to access to capital, the potential of such firms may not be realized. St-Cyr (2000) suggests that women entrepreneurs may face differential treatment (as compared to male entrepreneurs) when seeking financing from financial providers in the marketplace. The Prime Minister's Task Force refers to St-Cyr stating that existing research on the gender issue of commercial lending is contradictory and that these issues have not been resolved. The Task Force report (2003: 56-57) quotes St-Cyr (2000), who, in her review of previous studies on women entrepreneurs and their access to capital, summarized the debate as follows:
Women entrepreneurs have a higher loan refusal rate ... However, there are widely differing views in the literature on the causes of this situation. Some researchers believe that the refusal rate has to do with the women's personal characteristics and the characteristics of their businesses (younger, smaller, less profitable, in sectors that are less attractive to bankers, unincorporated and only one owner). ... Other studies [conclude that] differences persist even when the personal and corporate characteristics of women entrepreneurs are controlled for [and] ... some studies have attributed the differences [to] women entrepreneurs' lack of preparation to their lack of management skills and negotiating ability ... Hence, there is a serious possibility that women are being discriminated against by financial institutions. Thus, whether it is due to personal characteristics, the characteristics of their businesses or discrimination ... women entrepreneurs have difficulty obtaining the financing needed to launch and develop their companies. …