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Women entrepreneurs are growing at a phenomenal rate, and according to a recent survey by PNC Financial Services, women are also making riskier decisions when it comes to financing their large and small businesses.
The survey found that women business owners were becoming more and more reliant on credit cards as the main source of funding for their business expenses. According to the data, 59 percent of women use business credit cards to fund their businesses, and 34 percent use personal credit cards. Also, 44 percent of women business owners rely on personal and family savings to fund their business.
The survey was conducted in conjunction with BizFilings, an online company that suggests funding solutions for business to remain on track to securing a financial future. “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,” Karen Kobelski, a member of the leadership team at BizFilings said. “Incorporating can increase the credibility of your business, and may also help your chances of getting a bank loan.”
Female-led businesses have grown an astronomical 44 percent over the past decade. If these companies continue to grow on credit card debt rather than fixed interest rate business loans, it could have a detrimental effect on our economy down the line. Using a credit card as the main financial backing for a business does not leave enough cushion room for a financial downturn or business crisis.
Relying on these sources of income can be particularly tricky for women who can easily find themselves drowning in debt. On average, women use about 2.7 different sources of income to fund their business, and only about 26 percent of women business owners use a business loan to finance their small business.
Furthermore, if the client’s credit card payments are late or not paid, it could negatively affect the business and the client’s personal life. Late payments on a business may mean that a women business owner may not have access to a proper mortgage or car loan. Bank loans are the most stable and the most traditional source of business funding, but for some reason they don’t appeal as much to the female population. Male business owners are more likely to take out a business loan for a small business. This could be for a variety of reasons, but one reason could be the tiring task of going to the bank and asking for a loan, which requires direct human contact and a bit of hard-pressed negotiating may be frightening to some women. Also, many female-owned businesses are not incorporated, and an incorporated business is more likely to be approved for a loan, as it shows credibility, dedication and commitment to the brand.
Many women choose not to incorporate, but this could be detrimental to them and their business. Incorporating a small business helps to separate the personal financial risks from the woman and the company. After the business becomes incorporated, the business owner is no longer responsible for the company’s liabilities and debts, and is legally a separate entity. This means that if the company fails from debt or bankruptcy, the business owner’s personal home, vehicles, savings and assets will not be touched.