On a recent Small Business Edge podcast, I had the pleasure of talking to Irene Malatesta, head of content strategy at Fundbox, a company dedicated to creating better financial options for small businesses. Below are excerpts from our conversation:
Brian: You recently created an e-book titled “What If: Designing Fair and Equal Access to Credit for Women.” Tell us about the book and why you wrote it.
Irene: Women business owners in the US are making incredible contributions to the economy: they own millions of businesses that generate over a trillion dollars a year. Not only that but the growth rates of women’s businesses specifically are huge.
Brian: Tell me more about the credit gap between men and women business owners. What’s still holding women back?
Irene: Female entrepreneurs are more likely to use private sources like personal savings or money from friends and family, to finance their businesses. Though they apply in similar rates to men, only 39% of women-owned firms had a conventional bank loan. By comparison, 52% of male-owned firms received conventional bank loans.
Women fight harder to succeed, often get paid less than men do for similar work, and then must work harder to maintain good credit scores…all of that then contributes to women having a harder time getting approved for the credit they need, the loans they need, to build their businesses.
Brian: What’s the problem with traditional credit approvals?
Irene: The way current calculations of creditworthiness work, we feel those calculations lack nuance. They are imprecise, they are limited. Most of the current models used by banks contribute to a system where female entrepreneurs have a harder time than men do when they try to get business credit. Of course, it’s not impossible, women do it all the time, but the point is, it’s harder than it should be.
Brian: How can financial companies create a fairer future?
Irene: Technology is really fueling change in the financial space. The landscape in financial services is changing very fast. It’s already happening because of changes in machine learning, artificial intelligence, and cloud computing.
Because of these innovations, business owners now have a lot of new options to access credit based on a bigger dataset, more data sources, beyond just credit scores and income. We’re seeing a more and more nuanced understanding of business performance.
Brian: Lastly, how can women business owners proactively put their companies in a better financial position?
Irene: When I talk to business owners, I repeatedly hear that they wish they had known about the different ways to get capital, beyond traditional small business loans and credit cards. There are many options, and your choice will depend on factors such as the type of business you run, how many months or years you’ve been in business, revenue, and of course how fast you need the funds and how fast you can pay them back.
If you need the funds tomorrow to take advantage of a huge opportunity, that’s going to push you toward someone like Fundbox or another alternative online financer or fintech, because you just can’t get funds that fast from most other sources. If you can afford to wait and you want a longer time horizon to pay it back, or you’re seeking a much larger amount of funds, maybe a traditional bank loan is truly the better option. For other situations, you might end up with a combination of several financing sources—just like you might choose to have multiple credit cards but pay for some things in cash. There’s no harm in exploring your options, and you’ll be glad you did.
Brian: Thanks Irene! To listen to the entire podcast with Irene Malatesta, please visit our website: www.smallbusinessedge.com/podcasts