When women business owners need financing to fund growth, buy equipment or cover expenses, they often will turn credit cards or tap their personal savings before seeking loans from banks, credit unions or other lenders.

Among the reasons are that women generally fear debt more than men do and are often gun-shy about applying for loans if they have previously been rejected, bankers and observers said.

Also, many might be so focused on running their businesses that they don’t take the time to network and develop relationships with other business owners or even business bankers who could provide guidance on how to grow their operations, said Charles Smith, a Small Business Administration specialist with the $10.7 billion-asset Eastern Bank in Boston.

“A lot of women entrepreneurs isolate themselves … whereas men tend to congregate,” Smith said. “That creates a special layer of problems. You’re not getting adequate support, and you’re not getting the same networking opportunities as your male counterparts.”

small biz chart 2

Women-owned firms have grown steadily since 2007 and now account for one in five U.S. businesses, according to a report released last week by the Federal Reserve banks of New York and Kansas City. The report’s authors note that the share of employment by women-owned small businesses increased by 20% between 2007 and 2015, even as employment across all types of small businesses declined by 4%.

Yet the report found that women are not only less likely to be approved for loans than men, they are less inclined to apply for loans in the first place.

Women- and men-owned small firms used credit cards at similar rates, but women-owned firms were less likely to utilize other types of debt or equity than men-owned firms (28% versus 34%), the report said. When women-owned firms faced a financing gap, 78% of them relied on personal savings, while 41% chose to take on additional debt.

The report found that women are both less willing to take on debt and more fearful of rejection than their male counterparts, which came as no surprise to Joy Lutes, the vice president of external affairs at the National Association of Women Business Owners.

“Women business owners as a whole tend to be more risk averse,” she said. “They ask for less, they undervalue themselves and the company, and they are reticent to go back if they hear a no. They’re going to put it on a credit card or tap into a retirement plan or fall back on any personal assets they’ve accrued.”

It’s precisely that risk aversion that should make women-owned small firms a good bet for banks, Lutes said. She thinks that quality may have saved women-owned firms through the recession.

Still, businesses owned by men are far more likely to be approved for loans than firms run by women. During a one-year period from mid-2015 to mid-2016, the approval rate for men-owned firms was 61% versus 47% for women-owned firms.

Eastern’s Smith offered two reasons why that could be the case. The first is that women tend to start more service businesses that already have lower collateral. The second is that many lenders are men and may not understand a business real well if it caters mainly to women.

“A lot of men in the room may not understand the business model or see the need in it,” he said. “A lot of times you’re trying to convince a room full of people who might not use that service, so they, by default, wouldn’t choose to make that lending decision.”

For both men- and women-owned firms, approval rates on loan applications are highest at community banks. Similar to their male counterparts, women-owned small firms said that a previously existing relationship with a lender, plus their perceived chances of being approved, influenced their decision to apply for credit.

Women-owned firms also reported the most satisfaction when working with small banks (80%) compared with large banks (55%) and online lenders (48%). Yet, women business owners who did apply for loans or lines of credit were less likely than their male counterparts to turn to small banks in the first place. Among those credit applicants, 40% of women-owned firms applied to small banks and 49% applied to large banks, compared with 48% and 52% of men-owned firms, respectively.

Women have had a fair amount of success obtaining loans backed by the U.S. Small Business Administration loans and lines of credit than men-owned firms. According to the survey, 61% of women were approved for SBA loans versus 50% of men.

Smith said the agency has done a good job of making small-dollar loans more affordable for borrowers, by eliminating fees on loans under $100,000, for instance. He said he hasn’t noticed a gender difference among who applies for, and receives, SBA-backed funding, but for women- and minority-owned businesses that tend to have lower capital needs to begin with, it makes a difference.

“We make most of our loans in the under-$100,000 space, so the fee waivers have done their job. I can’t express that enough,” he said. “Those things have a disproportionate impact on women- and minority-owned companies.”

Dolores Rowen, the associate director of policy and research with the National Women’s Business Council, said she’s often encountered reluctance on the part of women entrepreneurs to apply to banks for financing. She said that many women business owners, particularly minority women, feel the deck is stacked against them from the start.

“We like to encourage women entrepreneurs, regardless of their stage, to always see women business centers or SCORE or other SBA resource partners,” she said. “We don’t want the perception that you’re going to be denied to prevent you from throwing your hat into the ring.”

Claire Kramer Mills, an assistant vice president and community affairs officer at the Federal Reserve Bank of New York, said that a lack of business assets is likely the major reason women business owners use credit cards or tap into their savings when they are short on funds. Yet that reliance on personal assets and more expensive financing can make it difficult for those firms to fuel growth, which in turn makes it harder for those firms to build up their business assets, she said.

Lutes agreed. “If you don’t start your business out with that lending relationship, it becomes harder to get later on,” she said. “Too many of our members are seeking personal sources to finance the start of their business, and then when it comes time to scale, it’s harder to jump in later.”

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.