Marcia Cubitt, left, president of Essential Bodywear, and Carrie Charlick, the company's CEO, talk July 31 in their warehouse in Commerce, Mich. Despite that their company has $4 million in sales, it has been rejected by banks for $500,000 credit lines since 2012.

AP photo

Marcia Cubitt, left, president of Essential Bodywear, and Carrie Charlick, the company's CEO, talk July 31 in their warehouse in Commerce, Mich. Despite that their company has $4 million in sales, it has been rejected by banks for $500,000 credit lines since 2012.

Loans often denied to women’s firms

By Joyce M. Rosenberg

The Associated Press

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NEW YORK – Women are a growing force in the business world, but if they own a company, they might still struggle to get a loan from a bank.

Carrie Charlick and Marcia Cubitt have $4 million in sales but have been rejected for $500,000 credit lines since 2012. Their 11-year-old company, Essential Bodywear, sells women’s underwear and lingerie at parties at customers’ homes.

Their sales system is a problem for bankers, Charlick said. Because the Michigan-based business doesn’t have a traditional structure and sells directly to the public rather than to retailers, banks keep saying no.

“We don’t have receivables, and we don’t own a building,” she said. “We don’t have collateral.”

Male loan officers also have made inappropriate comments about the fact the company sells lingerie. Charlick is convinced that they have a problem with women-owned businesses.

Women owners have long been at a disadvantage getting loans. Some states required husbands or other male relatives to co-sign business loans until the practice was outlawed by the Women’s Business Ownership Act of 1988. But women’s business loan approval rates still run 15 percent to 20 percent below men’s, according to the online lending marketplace

Several factors contribute to the problem, including:

  • Banks historically have been gun-shy about small businesses, and that caution increased due to stricter government regulations after the 2008 credit crisis.
  • Women-owned businesses often are young, making them look risky to lenders.
  • Women don’t look as creditworthy as men. Their credit scores in 2013 were on average 20 points below men’s, an improvement from 40 points in 2012, but still a significant difference, according to Biz2Credit.

But women owners also might hurt their chances for approval.

“Women don’t ask, ‘What do I need to do to get ready to borrow?’” said Maria Coyne, head of small business banking at KeyBank.

Many women-owned businesses don’t have enough revenue and cash flow to convince bankers they have the ability to handle their debts, said Lisa Stevens, head of small business banking at Wells Fargo & Co. More than two-thirds of women-owned businesses have less than $25,000 in revenue, Stevens said.

Those problems might come from a lack of confidence that would allow them to be aggressive about their companies, including getting a loan, said Barbara Kasoff, president of Women Impacting Public Policy, an advocacy group. They shy away from approaching a loan like any other business deal.

“You need to let the bank know you’re a good bet and they can invest in you and they can get their money back,” she said.

Regulations the government imposed on banks after the 2008 financial crisis have forced them to be wary, Coyne said. The Federal Reserve and U.S. Office of the Comptroller of the Currency examine banks’ credit policies and whether they’ve deviated from them, then makes a judgment about whether they’re being prudent lenders, Coyne said.

Members of the U.S. Senate’s Small Business & Entrepreneurship Committee introduced legislation in July that would make more U.S. Small Business Administration loans of up to $200,000 available to women owners. The bill also would allow lenders to give women owners more flexible loan terms.

Stringent terms demanded by one lender forced Alicia Hill to look elsewhere. She needed money for a second Workout Anytime fitness club in suburban Atlanta. Hill applied to her current bank three months ago, expecting her three years of successfully running a club to make approval easy. Instead, the bank emailed her two months later saying she needed to use her savings as collateral.

“It didn’t make sense to me. We needed that cash in case we needed to fund the business,” she said.

Hill got a loan within weeks from a financing company. She had been wary, believing such a company would charge a higher interest rate. But the rate she received turned out to be only slightly higher than a bank loan. The finance company also had a more realistic view of her ability to repay the loan than the big bank she had a 15-year relationship with, Hill said.

Individual banks might be resistant to lending to female business owners if they don’t understand the business, said Rocco Fiorentino, CEO of Benetrends, a North Wales, Pa.-based company that helps businesses get loans. For example, he said, companies that provide massages and other spa treatments.

“If the bank didn’t like that category, she might get turned down,” Fiorentino says.

Owners should find out before they apply what kinds of companies a bank likely is to lend to, he said.