Financing Profile: Women Entrepreneurs (October 2010)

Summary and conclusions

Women entrepreneurs play a significant role in wealth and job creation in Canada. Therefore, it is important to investigate the characteristics of majority female-owned firms and examine if they face unique challenges in acquiring financing. Despite the large amount of research conducted on female business owners, a consensus on access to financing by and the financial performance of majority female-owned firms is sometimes elusive. Using primarily 2004 and 2007 data from the Statistics Canada Survey on Financing of Small and Medium Enterprises, this report aimed to update the business profile of female business owners, conduct comparisons with male business owners and reveal important new trends that may be emerging among majority female-owned SMEs.

Although significantly fewer female business owners were under 40 years of age in 2007 compared with 2004, the average female business owner was still younger and had less management or ownership experience than the average male business owner. Moreover, majority female-owned firms were typically younger and more likely to be operating in the tourism sector than majority male-owned firms.

On the other hand, there is some evidence that majority female-owned SMEs may be catching up in term of business size to majority male-owned firms. Majority female-owned firms also had comparable amounts of before-tax net profit, assets and equity to majority male-owned firms in 2007. A word of caution should be made here, however, with regards to the interpretation of these results. Due to data limitations, it is too early to tell whether the results represent a short-term phenomenon or a long-term trend. Further data and research will be required to resolve this issue.

Majority female-owned firms were just as likely to seek external financing as majority male-owned firms in 2007. While there appears to be a difference in approval rates for debt financing between the gender groups in 2007, upon closer examination majority female-owned firms had a very similar approval rate as majority male-owned firms when it came to long-term debt financing, which accounted for almost two thirds of the total amount of debt financing requested by majority female-owned firms. However, majority female-owned firms were significantly less likely to be approved for short-term debt financing than majority male-owned firms. When measured as a ratio of the aggregated amount of approved debt financing to the aggregated amount of requested debt financing, however, the ratios were very similar between the gender groups in both 2004 and 2007. Thus, in terms of this ratio, there appears to be little difference in access to credit between majority female-owned and majority male-owned firms.

This report also found little evidence of disparity with regards to interest rates or requests for collateral between majority female-owned and majority male-owned firms that received debt financing. On the other hand, among SMEs that were denied debt financing, majority female-owned firms were significantly more likely to be turned down due to poor credit or insufficient collateral than majority male-owned firms.

Among SMEs with growth intentions, majority female-owned firms were more likely to require external financing to fund expansion plans than majority male-owned firms. While a majority of firms with growth intentions considered making a loan request to support these plans, majority female-owned firms were more likely to consider sharing equity in the business than majority male-owned firms, which contradicts previous research suggesting that female business owners were more hesitant than male business owners to change the ownership structure.

Based upon linked tax file data, majority female-owned SMEs exhibited lower growth rates in total revenue than majority male-owned SMEs. In terms of growth rates of full-time equivalents (employees), majority female-owned firms with growth intentions were significantly more active in hiring new employees than majority male-owned firms. Perhaps more importantly, firms with growth intentions posted noticeably stronger growth performances than firms with no growth intentions regardless of gender.

Results presented in this report suggest that while there continues to be differences between majority female-owned and majority male-owned SMEs, some of these differences may be fading. This report also provides evidence that the financing strategies and growth patterns of majority female-owned firms are influenced by initial growth intentions. Consequently, investigating female business owners as a homogeneous group will likely mask the varying financing challenges within this group. Indeed, the relationship between financing needs and growth intentions will likely be evident in other forms of SME categorization (e.g., rural firms, exporters). Further research that focuses on separate groups of female business owners by growth intentions, rather than comparisons made solely across gender, may help researchers gain a better understanding of the actual financing needs and concerns of this very important group of entrepreneurs.