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Risky Credit Decisions Threaten Women-Owned Businesses

2011-10-12

All data shows that the woman entrepreneur is on the rise.This could be because women tend to work well in groups and are great multi-taskers and communicators. In addition to that, women are also making riskier decisions when it comes to financing their businesses, according to a recent survey by PNC Financial Services. These decisions may have an impact on the longevity of these female-run businesses.

According to Karen Kobelski, a member of the leadership team at BizFilings, an online company that helped to conduct the survey, “women business owners are growing rapidly in numbers and overall success, but their increased reliance on alternative sources of funding isn’t a great long-term strategy,” she said.

The survey found that more so than their male counterparts; women entrepreneursused credit cards as their main source of business funding. The data found that 59 percent of women-run businesses use credit cards, and 34 percent use personal credit cards.

Credit cards are not the most secure option when funding a business, as there is very little room to breathe in case of a financial emergency or a business mishap. Fixed interest rate business loans are the traditional source of funding for small and large businesses, butonly about one in fourfemale business owners opt for a business loan as their primary funding option.

This could be for a variety of reasons, but a major reason is that many female-owned businesses lack incorporation. Banks look at incorporated businesses as the cream of the crop, and are more likely to approve incorporated banks because they represent brand dedication and credibility.

Women-owned businesses tend to use approximately three different sources of income fund their business, according to the survey.Many of these women use business credit cards, personal credit cards and funds loaned from family members. Women-run businesses tend to blur the line between business and personal expenses, and this can be detrimental to their businesses in the long run.

Incorporating may be the best route for them. When a small business becomes incorporatedit detachespersonal finances from business finances. If the company goes into debt or is forced to pay money, the women’s personal items such as house, car, and other large-ticket items will be left untouched. If the business is not incorporated, then the business owner’s personal finances are fair game.