The Scotiabank Women Initiative

Many women dream of being their own bosses - but only 16% of small and medium-sized businesses are majority-owned by women.

Those business owners face challenges, even after successfully launching their businesses. That might be, in part, because of the gender gaps small business owners who apply for and receive different forms of business financing in order to run their businesses.

Industry, non-profits, and the government have designed initiatives to help address these gaps. In 2019, The Scotiabank Women Initiative announced a commitment to allocate $3-billion in funding to women in business in Canada over three years. In addition to that commitment, we commissioned a study to help figure out why woman entrepreneurs don't seek financing opportunities and how that might be affecting their businesses. We surveyed 1,000 business owners, around half of whom were women. This is what we learned.

Most small business owners want growth

One thing that Canadian small business owners agree on is that growth is a good thing. Two-thirds of the survey participants said that it was important to grow their businesses.

Many women owners also seem confident in their future growth - 32% of women business owners expect to grow their sales revenues by more than 10% per year, versus only 26% of men.

But that significant future growth may be because women-owned firms are typically smaller. On average, women respondents said they had four paid employees versus the 12 paid employees reported by men in the study.

Women business owners drive growth differently

While both women and men believe business growth is important, strategies for how to grow their businesses differ, our study found. Women business owners focus on marketing, including selling to new customers, expanding advertising and promotion, and adding new products, services and processes in order to increase their sales and revenue. In contrast, men business owners, focus more on expanding distribution channels, computerizing operations, training employees and adding specialized employees.

It's not clear, however, if the main reason for these different growth strategies is because of the different kinds of businesses that are being run by women compared to men or if women are less likely to take the risk of hiring new employees or investing in technology because of lack of access to funds to do so. Women might be losing out on the potential for faster growth and the capacity to innovate because they don't have the capital to fuel it.

Women see financing as risky

The survey found that fewer women had applied for a business loan in the last 12 months compared to men with just 7% of women filling out applications versus 11% of men. Of those who said that they currently needed financing for their business, only 34% of women compared to 47% of men had applied for a loan.

But women were more likely to receive a loan when they did apply for it. Women had 88% of their loans funded versus 77% of men who applied.

What the findings suggest is that women small business owners might be less likely to assume the risks associated with incurring debt financing compared to their male counterparts because they fear the financing’s impact on their business or falsely believe that they won't be approved.

This could be a result of the recent focus in the business world on lean start-ups, which includes the emphasis on taking on as little debt as possible. This could be helped if more women's entrepreneurship programs focused about the importance of financing for firm growth and survival and taught women owners how to navigate financial risk.

Women say they could benefit from more financial education

The lack of financial education and knowledge might be one of the factors keeping women back from applying for financing. Women business owners were 56% more likely to identify as 'below average' in financial knowledge compared to men business owners – even when you look at people with comparable years of management experience.

That gap in financial knowledge might be keeping women from evaluating the best opportunities to grow their business and from understanding how business financing might help them survive and grow.

Women know what they need to learn

Despite not feeling confident in their financial knowledge, women seem to be aware of where their gaps are. According to the survey, women business owners in Canada want to learn about things like small business valuation, cashflow forecasting, financial risk management, sources of capital, and working capital financing.

It's clear that to help women succeed as business owners, entrepreneurship training and mentorship programs should ensure that they are covering these areas of financial knowledge.

Confidence plays a role

Interestingly, the Scotiabank study found that those who were more confident about their financial knowledge were more likely to access external financing. Women were overrepresented in the study in a group that had both 'low confidence and low knowledge' about business finances - comprising 62% of this group, while men small business owners comprised just 38% of this group.

Women were similarly underrepresented in the 'high confidence and high knowledge' group, with men small business owners making up 60% of this group and women small business owners making up just 40% of this group.

In order to close the small business financing gap in Canada, there is a need to strengthen both financial knowledge and financial confidence among women business owners.

The work ahead

What the study makes clear is that to fix the gender gaps in small business financing between women and men, there needs to be more support than governments and banks offering more financing opportunities to women. For women business owners in Canada to achieve the business growth everyone wants to see them achieve, they need to also be provided with education and other interventions that focus on building their financial knowledge and confidence.

Education and training should focus on things like teaching small business owners and leaders about the association between small business financial knowledge, financial management, and firm survival and growth. But these programs must be balanced with targeted efforts to help women feel confident in making growth and financing related decisions.

With women-owned businesses contributing $150 billion to the Canadian economy and employing 1.5 million people in 2018 according to Global Affairs Canada, helping women business owners helps others as well.

Ultimately, what the study shows is that it is important for those working to support women business owners to focus on empowering women owners so that they can achieve their goals and grow strong, sustainable, and successful businesses that will support them and their communities into the future.

Source: Research, Financial Knowledge & Financial Confidence — Closing Gender Gaps in Financing Canadian Small Businesses, March 2020.

Sign up for our quarterly newsletter