Women-owned businesses face what academics call “borrowing discouragement”, the reluctance to seek business financing because they believe their applications will be rejected. This happens despite no evidence of gender-based discrimination from financial institutions. Erhan Kilincarslan and Jiafan Li write that this is not women’s fault. They discuss ways in which society can prepare future generations of women.
Women-owned businesses face borrowing discouragement, the reluctance to seek business financing due to the belief that their applications will be rejected. Research indicates that women entrepreneurs are more likely to opt out during the application process out of fear of rejection, despite no evidence of gender-based discrimination from financial institutions. However, it is crucial to recognise that women should not be blamed for discouragement. Instead, society must prepare future generations.
According to the World Economic Forum’s Global Gender Gap Report 2023, it will take 169 years to close the global economic participation and opportunity gender gap. But there exist considerable differences among geographical regions. For example, full gender parity is estimated to be attained in 52 years (by 2076) in Latin America and the Caribbean, while it will take 189 years (by 2212) for East Asia and the Pacific region at the current rate of progress.
The Women Entrepreneurs Finance Initiative reveals that women entrepreneurs could potentially contribute $5-6 trillion to the global economy if sufficiently funded.
The gender gap in loan finance for UK small businesses widened in 2022. Women-led businesses received an average of £174,000 in credit, merely 34 per cent of the £507,000 obtained by male-led counterparts. Forty-four per cent of women entrepreneurs in the UK anticipated difficulty in applying for credit. Application costs, reluctance to lose control and risk-averse attitudes contribute to borrowing discouragement among UK women entrepreneurs. If it is already too late to boost their confidence now, what can society do for the next generation?
First is educational attainment. Lack of numeracy and financial literacy education undermines women entrepreneurs’ confidence in applying for business finance. Girls aged 9-14 are slightly less confident in STEM subjects than boys, despite comparable performance.
Boys outperform girls by nine score points between the ages of 10 and 15 in the UK, which may reinforce the stereotypes that men excel in engineering and technological and data-related fields. To combat these stereotypes and build up women’s confidence, parents, teachers and decision-makers should encourage girls to engage with maths and science from an early age.
Another significant factor contributing to under-confidence among young women in the UK is the insufficient personal financial education provided in primary and secondary schools. Alarmingly, only one per cent of UK primary school teachers believe that their students possess adequate financial literacy. The UK ranks 15th out of 29 OECD countries in this area. This deficiency in basic numeracy education from an early age adversely affects individuals’ physical and mental health and diminishes their confidence in life-planning. As a result, some women develop risk-averse attitudes and lack confidence in financial investment and entrepreneurship. To empower the next generation, society must prioritise financial education starting from early schooling to improve their confidence and competence.
Second, society is responsible for challenging the stereotype that the modern business world is a male-dominated environment. Researchers argue that women should not be blamed for borrowing discouragement because it stems from rational beliefs based on their experiences. Policymakers, governments and financial institutions should guide the public to understand the reasons behind stereotypes about the gender gap in entrepreneurship.
For example, the British Business Bank commits to sharing reports and findings with the venture capital industry and society to highlight women entrepreneurs’ financing struggles. The NatWest Group has consistently published the Alison Rose Review of Female Entrepreneurship from 2019 to 2023, offering support to women-owned businesses in the UK.
Societal and cultural promotion of women’s confidence contributes to a fear-free environment for women entrepreneurs. Gen Z has increasingly focused more on gender equality in education and pay than Gen X and Y. Governments and organisations should promote inspirational female role models with successful careers. For example, when Gen Z sees Taylor Swift, who became an entrepreneur at age 14 and achieved record-breaking new album sales of 1.6 million copies in the US in one day, what do they think? Especially, Taylor Swift’s battle with Universal Music to retain her control over copyrights exemplifies female empowerment: Universal is the largest recording company, controlling over one-third of the world’s music. Similarly, Emma Grede inspires entrepreneurs despite having dropped out of the London College of Fashion due to tuition costs. She is now the first Black female investor on Shark Tank and, together with Kim Kardashian, co-founded Skims, which is valued at $4 billion and may be going public.
It takes remarkable courage and resilience for women to stand out in a male-dominated world. Overcoming borrowing discouragement is essential, and like Taylor Swift sings, “all I do is try, try, try.” Let’s work together to empower the next generation of women entrepreneurs.
- This blog post represents the views of the author(s), not the position of LSE Business Review or the London School of Economics and Political Science.
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