Credit Gap for Women-Owned Firms a Threat to Economy, Report Says

The flow of capital to female entrepreneurs has improved in recent years, but it’s still not commensurate with the growth of women-owned businesses, according to a study being released today by the Milken Institute.

That gap puts the United States at risk for a slowdown in economic growth and productivity because the nation’s economic health is inextricably linked to the growth of women-owned firms, the study says.

Titled “Economic Prosperity, Women and Access to Credit,” the report is similar to one released by the Santa Monica organization last month detailing lending and investment shortfalls to minority-owned firms.

Figures in the report, culled from a variety of previously published studies, show that women receive only 12% of all credit provided to small firms even though they own nearly 40% of the nation’s businesses and employ nearly 28 million workers. As a result, women continue to rely heavily on alternative sources of financing such as credit cards, family and friends, limiting the growth of their enterprises.

“Not taking women seriously as creators of wealth is a great opportunity lost,” warns the report.

The Milken Institute recommends several ways to improve the flow of capital to women-owned firms. Those include:

* Amending Federal Reserve Regulation B. That’s the rule prohibiting bankers from collecting data regarding a loan applicant’s sex. Although it was enacted to prohibit discrimination, the Milken Institute argues that it has prevented lenders from collecting important demographic data about their borrowers, thus limiting their ability to target underserved groups.

* Creating new credit scoring models that don’t penalize women. For example, some women may have shorter credit histories than their male counterparts because they put their careers on hold to care for children.

* Implementing a national Capital Access Program. Several states, including California, have already established these loan portfolio insurance programs, which allow lenders to make loans they otherwise wouldn’t make.

* Utilizing securitization. Securitization has encouraged bankers to make more mortgage loans because of increased liquidity and lower transaction costs. The Milken Institute would like to see financial institutions do the same with small-business loans, standardizing and pooling them in order to sell them as securities to institutional investors.

The report also highlighted what it considers to be some of the nation’s best lending programs for women. Among them is the Banker’s Community Development Corp. Loan Program, a consortium of San Diego banks that pools funds to provide financing to underserved borrowers. About half of its loans are made to women.