Sara Carter

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Sara Carter Professor of Marketing Stirling
University
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Gender, Entrepreneurship and Finance Women,
banks and entrepreneurship

• Professor Sara Carter,
• Centre for Entrepreneurship,
• University of Stirling, Scotland

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Women Owned Businesses

• Profile
• Younger and smaller
• More likely to be sole traders and start on their
  own
• More likely to operate from home
• Concentrated in traditionally female sectors,
  retail, business services, personal services
• Lower average sales turnover and less likely to
  be VAT registered
• Lower average employment profile
• More likely to have additional part-time
  employment
• Less likely to own more than one business
• Why?
• Business performance related to initial
  capitalization and resource endowments
• Given same starting resources, female-owned and
  male-owned businesses perform equally well
• Consequences?
• Relatively lower inflows and potentially higher
  (unexplored) outflows from self-employment

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Constraints on Womens Enterprise

• Belief that finance is main constraint affecting
  womens ability to start and grow a business
• Women start businesses with
• lower levels of overall capitalisation
• lower ratios of debt finance
• 1/3 the starting capital used by men
• personal savings and informal finance sources
• no VC and business angel investment
• No evidence of bank discrimination (Fay and
  Williams 1993 Fabowale et al 1995 Haines et al
  1999 )
• Residual concerns of unfair treatment by banks
  and perceptions of patronising attitudes, but
  banks now employ women as loan officers
• Women pay significantly higher margins on term
  loans than male owned businesses 2.9 v 1.9
  over base (Fraser, 2005)

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Researching Women and Finance

• Q. Why do women use less finance than men when
  starting a business?
• A1. Structural dissimilarities between male and
  female businesses
• Women and men start in such different businesses
  that finance differences are inevitable
• But, when we control structural factors (sector,
  age, spatial), women still only use one-third the
  initial capital used by men
• A2. Supply side discrimination
• But, there is no evidence that banks
  discriminate, neither is it in their interest to
  do so
• A3. Demand side risk aversion
• Evidence that some women avoid debt, are poorer
  and more conservative with money

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Research Focus

• The lending criteria used by bank loan officers
• The lending processes used by bank loan officers
• The personal constructs held by bank loan
  officers of male and female entrepreneurs
• The capitalization and performance of male- and
  female-owned businesses
• The effect of human and social capital on the
  ability to raise financial capital

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Supply Side stages 1-3

• Individual interviews with male and female bank
  lending staff using business plan (ascribed to
  Jack or Emma) to explore lending criteria
• 2. Focus groups with bank lending staff to
  discuss business plan and lending criteria (3
  male FG, 3 female FG), to explore lending
  processes
• 3. Post-focus group individual personal
  construct interviews (using Kellys Repertory
  Grid technique), to explore perceptions of
  entrepreneurs

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Demand Side stages 4-6

• 4. Telephone interviews with 100 business owners
  (50/50 male/female), business services sector,
  less than 3 years old, central Scotland, for
  comparative analysis of entrepreneurs
• 5. Depth personal interviews with 30 matched
  pairs of business owners, using structured
  questionnaire (previously developed questions and
  scales), to elicit access and use of various
  capitalization
• 6. Post interview individual personal construct
  interviews (Kellys Repertory Grid technique)

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1. Lending Criteria

• Similar criteria used to assess male and female
  entrepreneurs, but
• Male applicants questioned more on the business
  proposition, financial history, and personal
  characteristics
• Female applicants questioned more on whether
  sufficient research undertaken
• Some differences in criteria by male and female
  loan officers
• Male loan officers focused more on commitment of
  applicant (esp. when female)
• Female loan officers focused more on marital
  status of applicant (esp. when male), meeting
  applicant to make sure they fit the plan
• Searching for proxies that indicate
  trustworthiness and business acumen
• Evidenced by gut instinct and feeling
• Individualised decision making of bank loan
  officers
• one guy could fund a project, another would
  reject it

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2. Lending Processes

• Female loan officers
• The business plan, size of loan, terms of loan,
  difficulty in accessing good deals from
  introducers and brokers
• I did actually get a deal from an accountant and
  it was absolute rubbish. He gave me the rubbish
  one that nobody would do I know he has access to
  so many good quality clients and he doesnt give
  me many of those (female)
• All we do really is we put the whole proposal
  together and then it gets emailed off to the
  credit team. The decision lies with them
  (female)
• Male loan officers
• Rapport with applicant, gut instinct, developing
  relationship with credit sanctioners
• You assume if you put something in, there will
  be someone in that team will pick it up and you
  do have a working relationship with them (male)
• The bank is here to make money, so we need to do
  deals. So, thats why when we talk about
  negotiation its a realisation of the need to
  generate income (male)

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3. Personal Constructs

• Wide range of constructs held by bank officers,
  mainly focused on the character of the
  entrepreneur
• 1st Round Tests
• Statistically significant gender differences
  observed in 20 / 325 constructs
• (10 male, 10 female loan officers)
• 2nd Round Tests
• Detailed multivariate analyses confirmed no
  evidence of systematic gender differences in
  constructs held by bank loan officers of business
  owners
• No gender differences (21/35 grids)
• Unsystematic differences on some constructs
  (13/35) (6 female, 7 male)
• Systematic differences but not construct
  differences (1/35) (1 male)
• Systematic and construct differences (0/35)

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4. Capitalization and Performance of Male and
Female Entrepreneurs

• Sex differences after controls for sector,
  business age and location
• Capitalization Male mean 18k, Female mean 6k
• More women (21) than men (5) used external
  finance.
• 17/21 women had external investment under 500
• 4/5 men had external investment over 1,000
• Industry focus men more likely to work in
  management and business consultancy, women in
  business services
• Ownership 90 women, 66 men started as sole
  traders, men more likely to start with co-owning
  spouse and also to employ spouse in firm
• Size men twice as likely to employ additional
  staff, more likely to report higher sales
  turnover, more likely to serve company clients
  rather than individuals

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5. Relationship between Financial and
Non-Financial Capitals

• Human capital
• Educational qualifications identical
• Age women 41 versus men 51 (average)
• Work experience women 11 years versus men 22
  years (average)
• Gross household income identical
• Earnings prior to start-up women 32k versus men
  46k (average)
• Social capital
• Women active weak-tie networkers, but dependent
  on friends and family
• Men strong locally-embedded ties within industry
  sector
• Symbolic capital
• Credibility problems affect 30 women versus 0
  men

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Conclusions

• Clear capitalization performance differences by
  men and women entrepreneurs
• No deliberate discrimination by banks
• Focus on character of loan applicants is
  integral to lending process
• But, gender differences in lending decisions are
  subtle, engrained and unconscious
• Loan officers negotiate outcomes that suit
  their world view
• Gender continues to be an important, but hidden
  variable in acquisition of debt finance
• Different experiences of male and female bank
  loan officers
• Importance of internal networking and
  negotiations (often as a male dynamic) as an
  unspecified and unseen element of the lending
  process
• Difficulties of women in accessing deals
• Supply-side and demand side factors interact to
  co-produce the lending decision the aspirations
  and expectations of women entrepreneurs and the
  perceptions of bank lending staff of women
  business-owners and female-type businesses
  both affect the loan decision

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What can be done?

• Female Entrepreneurs
• May seek smaller sums, but insufficient to
  sustain the business
• May operate in sectors assumed to be low-growth,
  but lucrative female markets often invisible to
  men
• Use low-cost, low-key entry to test the water,
  and need more hand-holding in the early years
• But, we must not view women as homogenous group
• Female Loan Officers
• Clear HR issues high turnover of female lending
  staff, recruitment, training, assistance in
  developing networks of brokers
• Clear practice issues internal communication
  between business development and credit control
  functions
• Women Focused Banking
• Development of womens business banking
  requires long-term, high level commitment and a
  team of enthusiasts to develop the market from
  grass roots to boardrooms

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Gender, Entrepreneurship and Business Finance
The relationship between banks and entrepreneurs
in the UK

• Professor Sara Carter,
• Centre for Entrepreneurship,
• University of Stirling, Scotland

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