Being Female Affects Business Loans from Family and Friends

featured image
Share Article
Executive Summary:

It’s been said (ruefully) that Ginger Rogers had to perform the same dance moves as Fred Astaire, only backwards and in high heels. Unfortunately, this also holds true for women seeking financing for their new ventures – even from family and friends. 

Studies have shown that women traditionally have had a harder time getting financing from banks than men do. But new research by Northeastern University professor Kim Eddleston reveals other discouraging news: women entrepreneurs who borrow from family members are held to higher standards than their brothers or uncles would be. 

Eddleston looked at 162 women-led firms and about 90 male-led firms, and factored in variables such the number of fulltime employees, the age of the business, the number of hours that the entrepreneur spent developing and running the business, and the firm’s performance. More than a quarter of the women and about 30 percent of the men had received financing from loved ones. 

Her results: while women on average receive larger loans from family and close friends than their male relatives, these loans come only after they demonstrated higher levels of personal investment in their business and number of employees. Men didn’t need to prove themselves like this – they received the same investment regardless of the level of commitment or number of employees. And among the entrepreneurs who committed the least amount of time and had the smallest number of employees, men received more dollars on average from friends and family than women did. 

“Even family and close friends show some gender bias against women entrepreneurs when granting loans,” the study concludes. 

Family and close friends can be an important part of funding for women entrepreneurs because they often receive far less from banks. The men in Eddleston’s study on average obtained $681,917 in bank loans; the women in the study obtained an average of only $39,218 from banks. Women who sought financing from friends and family received an average of about $16,000, compared to only $8581 for men, but had to demonstrate exceptional commitment first.   

This bias is deeply rooted in how women are perceived in business and by society in general, perceptions that persist despite the strides they have made in the corporate world. A concept called “gender role congruity theory” has shown that women are punished if they behave in a corporate or organizational setting in such a way that deviates from the nurturing role that society expects of them. Gender role congruity theory also explains why banks often discriminate against women who are borrowing for their business, through smaller loan amounts and higher interest rates. 

“Gender stereotypes lead capital providers to view women’s businesses as a hobby, part-time, or an extension of their home-maker role, thus leading them to view their businesses as less attractive investments than those owned by men,” Eddleston notes, quoting an earlier study. 

With more limited access to traditional financing, women entrepreneurs often need to turn to loved ones, but gender bias prevails there too. While a woman’s nurturing nature often inspires affection among loved ones and makes them more likely to open their wallets, it also can make it hard for them to imagine the entrepreneur in a forceful, entrepreneurial role. Thus, they look more carefully at other measures of a business’s legitimacy and future viability – such as the number of employees and hours the entrepreneur spends working – than they would at a male relative who was asking for money. 

The Takeaway:

For entrepreneurs seeking financing from family and friends, there is good and bad news, but the news varies for men and women. Although men on average tend to receiver smaller loan amounts from family and friends, they tend to receive loans regardless of how much time they invest in the business and how many employees they have. In contrast, while women, on average, tend to receive larger loan amounts from family and friends, they need to first demonstrate personal investment in the business and growth in employees in order to secure these loans. The study, therefore, suggests that although women entrepreneurs may receive larger loans from family and friends, they are held to a higher standard than their male counterparts. 

 

 

Read Full Article

Kimberly Eddleston

Kimberly Eddleston

Professor, Daniel & Dorothy Research Fellow / D'Amore-McKim School of Business / Northeastern University
View Profile

Publication Endorsement Editors


Cite this Article

DOI: 10.17919/X9PX00
Eddleston, K. (2018, March 19). Being female affects business loans from family and friends. Entrepreneurship & Innovation Exchange. Retrieved July 22, 2018, from https://family-business-org.appspot.com/content/being-female-affects-business-loans-from-family-


Comments

There are no more comments for this resource.
We use cookies to enhance your experience. By continuing to visit this site you agree to our use of cookies.
More Info