Financing options for women-owned businesses.

While the steady rise in women-owned businesses in Southern California over the past decade has been an encouraging economic sign, the issue of securing true business financing remains a significant obstacle for women who want to get beyond using their personal savings, credit cards and family members to finance their ventures. And though this is not a problem exclusive to women business owners, nearly one-third of women who responded to a recent Center for Women's Business Research survey indicated that finding financing for their start-ups and active businesses remains their biggest challenge.

In a recent report by the Center, 213, 750 women-owned firms in Los Angeles County employ almost 364,000 people and generate $52.2 billion in sales. It is estimated that between 1997 and 2002, the number of women-owned firms in the region increased by seven percent, their numbers of employees grew by 50 percent, and sales increased by 62 percent.

"There are a lot of financial resources for women to access compared to a decade ago," said Eileen Goodis, president and CEO of Home Pharmacy California, a Burbank-based health care/pharmacy management company. "It's great to seethe diverse funding vehicles available to more women as financial institutions realize their significant role in the economy."

About half the participants believe they have the business financing skills needed to acquire capital. Meanwhile, 35 percent of women business owners in the study are reinvesting business earnings, 20 percent are using personal credit cards, 10 percent have a commercial bank loan and just eight percent have a line of credit.

Where to start and what to expect

Before approaching a banker or organization for capital, the borrower must have proper financial statements and a solid business plan. Here are five items to think about before starting research on loan options:

* Develop a comprehensive and strategic business plan, paying close attention to the financial section

* Develop a feasible growth strategy that includes a detailed exit strategy

* Learn the process of raising capital and get to know the investor community

* Identify investors by conducting background research on their current and past portfolio

* Most importantly, do not take a "no" personally; many investors will reject a deal because it does not fit into their profile or they are just too busy

It is important to remember there are financing options available for every kind of business. Research and speaking with women-based business organizations will help lead the borrower in the right direction.

Government-funded loans

The U.S. Government's Small Business Administration (SBA) works with private lenders, corporations, non-profit groups and other government agencies to provide small business loans, grants and venture capital assistance to small businesses unable to secure financing through normal lending channels. The SBA has several loans tailored for women and minorities.

For instance, the Women & Minority PreQualification loan program acts as an intermediary, assisting the small business owner in developing a viable small business loan application package and securing a small business loan for a maximum of $250,000. The SBA will guarantee up to 85 percent of the loans up to and including $150,000, and 75 percent of loans over $150,000. The intermediary (usually a Small Business Development Center) then helps the borrower, at no cost, locate a lender offering the most competitive rates. Some for-profit organizations that structure such loans will typically charge a fee.

The SBA also has endorsed three fund options for its program, one of which is The Women's Growth Capital Fund created to invest in qualified women-owned businesses that are seeking capital to expand beyond their development and early growth stages. In rare cases, it might consider investments in start-ups or in companies that are not owned by women, but provide products and services especially relevant to women.

What do financial institutions offer in loans?

Consider Union Bank of California's Urban Enterprise Banking program, which was started several years ago to specifically target creditworthy small businesses that are at least 51 percent owned and managed by women and minorities.

This program offers flexible underwriting criteria that allows customers to exhibit selected financial weaknesses, such as a weak secondary repayment source, and still qualify for loans. Traditionally, these businesses pay loans on time and require additional bank services as the business grows, which is a great resource of new business for financial institutions.

To qualify under this program, the company must have been in business for at least two years and be profitable in its first fiscal year. Loans vary from about $5,000 to $2.5 million, and products range from working capital lines of credit to leasehold improvements and loans for vehicle purchases. Loans have been made to a wide variety of industries, including wholesalers, distributors and professional service contractors.

Smaller loans from non-profit organizations 

While there are many financing options for the for-profit community, there also are nonprofit organizations that specifically loan capital to women-owned businesses. Count Me In is a national non-profit organization that will raise money from women to be loaned to women. Its mission is to strengthen women's position in the economy. Loans range between $500 to $10,000 at an interest rate of 12.5 percent with repayment terms of between six to 84 months.

Why Are Specific Women-Owned Business Loans Important?

According to a National Association of Women Business Owners membership survey, 76 percent anticipate the need for additional capital to grow their firms over the next three years, including four percent who say they will require an additional $1 million or more in growth capital.

"Today, women who own companies provide new energy and vitality to our economy," said Betsy Berkhemer-Credaire, president of the California Chapter of National Association of Women Business Owners and president of Berkhemer Clayton, a retained executive search firm in Los Angeles. "Financial institutions are at last realizing the great potential to make money by betting on women business-owners."

Bita Ardalan is senior vice president and division manager of Union Bank of California's Commercial Banking Group. She is based in Los Angeles.