Financing Profile: Women Entrepreneurs (October 2010)

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Owen Jung
Small Business Branch, Industry Canada

Summary: An update of the November 2004 profile on women entrepreneurs, this profile describes the recent financing activities of small and medium-sized enterprises (SMEs) majority-owned by women in Canada. General business characteristics and financial growth performances are compared with SMEs majority-owned by men to highlight past and current gender differences.

Highlights

Majority female-owned small and medium-sized enterprises (SMEs) (i.e., 51 to 100 percent of the ownership of the business is held by women) constituted 16 percent of SMEs in Canada in 2007.
On average, female business owners were younger and reported fewer years of management or ownership experience compared with male business owners.
Majority female-owned firms were more likely to operate in the tourism industry than majority male-owned firms.
Revenues earned by majority female-owned firms were still significantly less than revenues earned by majority male-owned firms in 2004 and 2007; however, before-tax net incomes generated by majority female-owned firms were comparable to net incomes generated by majority male-owned firms.
In 2007, majority female-owned firms were just as likely as majority male-owned firms to seek external financing (17 percent request rate), in contrast to 2004 when majority male-owned firms were more likely to seek financing than majority female-owned firms (24 percent versus 15 percent respectively).
Most majority female-owned firms that sought financing in 2007 were successful in acquiring at least some form of external financing; however, majority female-owned firms were less likely to be approved for short-term debt financing, such as lines of credit and credit cards, than majority male-owned firms (77 percent versus 94 percent respectively).
There was little evidence of disparity with regards to interest rates or requests for collateral among majority female-owned and majority male-owned firms that were successful in obtaining 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 a poor credit history or insufficient collateral than majority male-owned firms.
Among SMEs that intended to expand the size and scope of their businesses within two years (i.e., declared growth intentions), majority female-owned firms were more likely to require external financing to fund their expansion plans than majority male-owned firms. Interestingly, majority female-owned firms were more likely to consider sharing equity in the business to fund their expansion plans than majority male-owned firms.
In 2007, majority female-owned firms were more likely to declare growth intentions than majority male-owned firms.
From 2004 to 2008, firms that declared growth intentions exhibited noticeably stronger growth in total revenue and full-time equivalents (employees) than firms that did not declare growth intentions regardless of owner gender.

Introduction

Women entrepreneurs are an important part of the small and medium-sized enterprise (SME) landscape in Canada. Fostering entrepreneurial activity among women, therefore, will have a significant impact on wealth and job creation across the country. Access to financing is an essential ingredient to achieve growth for almost all entrepreneurs. However, there is concern among some researchers that female business owners have less access to financing — or receive financing under less favourable loan conditions — than male business owners due to a number of factors, including smaller business size, a lack of managerial experience and a weaker credit history or lack thereof. At the same time, there is a considerable volume of literature suggesting that no disparity exists in access to financing among female and male business owners.

Using the most comprehensive database of Statistics Canada on SME financing, this report outlines the business characteristics and recent financing activities of majority female-owned SMEs (i.e., 51 to 100 percent of the ownership of the business is held by women). Hereafter, "female business owners" refers to owners of majority female-owned SMEs only. Based primarily on the 2004 and 2007 results of the Survey on Financing of Small and Medium Enterprises, the two most recent years available, this report attempts to address the following questions:

How do the characteristics of majority female-owned SMEs differ from those of majority male-owned SMEs?
How do the experiences of female business owners differ from those of male business owners when seeking financing?
Do majority female-owned SMEs exhibit different growth patterns than majority male-owned SMEs?
What are the substantial obstacles to accessing financing faced by female business owners?

SME Financing Data

For the purposes of this report, small and medium-sized enterprises are defined as enterprises with fewer than 500 employees and less than $50 million in annual revenues. The SME population excludes non-profit and government organizations, schools, hospitals, subsidiaries, co-operatives, and financing and leasing companies.

The financing data used in this analysis originate from the Statistics Canada Survey on Financing of Small and Medium Enterprises. This survey is intended to study the demand for, and sources of, SME financing. The resulting database includes information on the application process, firm profiles and demographic characteristics of SME ownership. For more information on this survey, see the Survey on Financing of Small and Medium Enterprises section on this website.

Although this report focuses on SMEs that are majority female-owned or majority male-owned, about one fifth of the SMEs surveyed were identified as being jointly owned (i.e., 50–50 split ownership between the two genders). As it is impossible to ascertain any disproportionate authority or responsibility among the owners, if present, jointly owned SMEs have been mostly excluded from this analysis.