Women Business Owners Make Capital Decisions To Support Growth & Control.

A groundbreaking study has shed new light on the attitudes and motivations behind the capital choices of women business owners. The research showed that business experience and a desire to build a large company are key factors that affect the choice of financing options.

The study from the Center for Women’s Business Research is titled “Capital Sources: Volume One, What Matters and What Works,” and was underwritten by Wells Fargo. Capital Sources: Volume Two will be released early in 2006.

“Contrary to common belief, the study found that women business owners are very confident when assessing their financial needs and making financial decisions,” said Marjorie Alfus, chair, Center for Women’s Business Research. “More than
two-thirds (69%) of women entrepreneurs said they feel confident with the decisions they make regarding external financing for their businesses as well as with their ability to assess how much financing they need to ask for when seeking capital (66%).”

Women business owners want to make informed decisions regarding external financing. A large majority of the women surveyed (87%) tend to make sure that they have all the relevant information and data available prior to making a decision. Only 34% relied on their gut or instinct to make the decision.

Relationships and experiences with lenders and investors are important criteria when selecting a financial services provider. Two-thirds of the respondents (67%) indicated that they chose financial products or services based on their previous experience or relationship with a lender or investor. Cost is a further consideration. More than half of the women business owners (54%) indicated that they also tended to choose financing options based on the lowest cost.

“Women business owners are savvy financial services customers,” said Joy Ott, regional president for Wells Fargo Bank in Montana and national spokesperson for Wells Fargo’s Women’s Business Services program. “We are proud of our track record of providing innovative products and services and being one of the first companies to understand the high value this segment of the small business community sets on strong investor relationships.”

The data shows a progression in the use of capital depending on the stage of business growth from personal savings and personal credit cards to business lines of credit and business loans.

Women owners of younger businesses or businesses with revenues under $1 million are less likely to use as wide a selection of financing options, focusing instead on personal savings and personal credit cards. In contrast, women who have been in business longer or have businesses with revenues of

$1 million or more choose more sophisticated options.

Women business owners are confident about the financial viability of their businesses. More than half (52%) are confident that their companies could return a profit for investors and owners of larger companies were even more confident than owners of smaller firms (59% vs. 47%).

Equity financing is less well understood than other forms of financing. More than two-thirds of those surveyed (68%) indicated that they did not understand equity from investment firms.

However, women who do understand this type of financing are comfortable with the risks associated with equity financing

(39% vs. 9% of those who lack understanding of equity financing) and believe that obtaining equity investments is important to helping them stay competitive (33% vs. 18% of those who lack understanding of equity financing). Equity is more likely to be considered an option among women who want to grow large businesses.

Concern about losing control of the business is also related to women business owners’ willingness to seek equity financing. Overall, only 21% of the women business owners agreed that they were willing to give up some control of their business in return for capital. However, those women business owners whose business goals were related to creating jobs (27% vs. 14%), building great wealth (23% vs. 12%) or fulfilling a personal vision (23% vs. 12%) were twice as likely to be ready to give up control for capital compared to those who did not have these goals.