November/December 2019

FEMALE-OWNED BUSINESSES START WITH MORE FEMALE-RUN LENDERS

It is no secret that women-owned businesses often struggle to find working capital. Krista Morgan points out that women’s failure to obtain financing directly correlates to the scarcity of women lenders. She provides a road map to create more diversity in the lending side of the finance business.



Krista Morgan
CEO & Co-Founder P2Binvestor

I founded an ABL fintech lender with no prior experience in finance or lending. As you can imagine, I had to ask a lot of questions about lending, credit, risk, and finance in general. It was intimidating. I constantly found myself in the room with (mostly) men who used terms and acronyms I didn’t understand. I had to force myself to openly admit what I didn’t know and ask for explanations.

Five years later, our company has lent more than $1 billion to growing businesses, we have strong portfolio performance, and we have grown year over year since inception. I can confidently say I have developed a strong grasp of lending, credit, risk, and finance in general. And yet, I have no end of anecdotes to suggest I am not yet taken seriously.

I don’t fit in this world. I find it uncomfortable to go to industry events and be in a minority of women. Even armed with all of my knowledge and experience, men regularly talk down to me. “Mansplaining” is a real thing that happens all the time.

And yet, I love running a lending business. I find incredible joy and satisfaction in helping growing businesses access capital. I spend a lot of time thinking of ways to re-invent how things are done, and how we can improve both the lending experience and reduce risk at the same time. I know our success is partly due to the fact that I bring a unique perspective that isn’t encumbered by how things have always been done.

My experiences from building this business have informed our brand and customer approach. Simplicity, transparency, and honesty are core tenets of how we do business at P2Bi. We want business owners to be able to easily understand how the product works, what the risks are, and what things are actually going to cost. When business owners call, we avoid jargon, we use straightforward language, and we encourage them to ask questions. We treat them the way we would want to be treated.

If You Build A Diverse Team, You Will Attract A Diverse Client Base

According to Experian, 39% of all U.S. businesses have women majority ownership, employ nearly 9 million people and generate more than $1.7 trillion in revenue1. And yet a 2014 Senate report showed that only 16% of all conventional small business loans are going to women-owned businesses.

At P2Bi, more than 30% of our client companies are run by women. It’s not an accident. It’s a self-fulfilling prophecy. I am a female CEO and I make my desire to build a diverse team known to the world. I therefore attract diverse people to work with me, and they attract more diversity to our team. That diversity appeals to female business owners, and honestly some men as well. People want to do business with people that have the same frame of reference.

The alternative lending world is dominated by men. It’s not uncommon to go into a meeting where I am the only woman in the room. Imagine how female business owners who are already nervous and uncomfortable asking for money feel when faced with that situation. They want to feel safe to ask questions without concern that it will disadvantage them in the deal or make them look stupid.

Asking for money, whether equity or debt, is a vulnerable experience regardless of whether you are a man or a woman. As women business owners, we tend to feel this more keenly because we already feel like we stand out and we don’t like rejection. Having a diverse team means your organization will demonstrate greater empathy and foster a sense of trust amongst female clients.

If We Give Women Access to Capital, We Will See More Women-Led Businesses

Access to capital is critical to grow a business to any kind of scale. There is a lot of focus on the fact that only 2% of venture dollars are going to female-led businesses, but most companies aren’t a fit for venture capital. Instead, they access debt to grow their business and smooth the cash flow gap that comes with that growth.

It seems intuitive that women should have no trouble getting access to debt. Unlike venture investors, lenders have on a set process and generally accepted metrics to inform decisions. So how is it possible that only 18% of SBA loans go to women? Why are women asking for 80% less capital? And why do women-owned businesses have a lower rate of loan approval?

These numbers don’t make sense in the context of the overall market of women-led businesses. They reflect an underlying problem in the system, and the common theme is that venture and debt decision-makers tend to be men. I honestly don’t believe there is some large-scale conspiracy against women. But study after study demonstrates evidence of unconscious bias when it comes to women and any kind of funding.

Until we have diversity in the sources of funding, we won’t have diversity in the people who get access to that financing. Unfortunately, it’s also a self-fulfilling prophecy. Men are investing and lending to male entrepreneurs. Those entrepreneurs are more successful because they were given better access to capital and so they sell their businesses for more money and then turn around and start investing in other men.

Awareness is The First Point of Choice

It’s going to take at least a generation to get enough women into leadership roles across all industries so unconscious bias won’t be so one-sided towards female entrepreneurs. But that doesn’t mean there’s nothing we can do in the meantime.

Here are three things every lender, whether male or female-run can do today to create positive change:

1. Hire women in decision-making roles. In lending, that means finance, credit, legal, risk, and sales. If the only women on your senior team are in marketing and HR you aren’t making a difference. I know there are plenty of smart, capable women in these fields. As leaders of lending organizations, it is up to us to find them, promote them, and help them be successful. For what it’s worth, my leadership team is 60% female, and our marketing team is run by men.

Our organizations will be the better for it.

2. Make diversity a conversation topic. I have had male leaders tell me they find it uncomfortable to talk about diversity because they don’t know what to say. The simple act of bringing up the topic and admitting you aren’t sure where to start IS a great start. We can tell our sales and credit teams that we want to see more female-led clients. And we can all choose to actively do what it takes to win that business. The data proves that while women aren’t getting as much funding, they run better businesses with higher margins and greater profits.

Our portfolios will benefit across the board.

3. Rethink the status quo. Commercial finance has been done the same way for a long time. Most innovations are simply automating what is being done today so it can be done faster. But our world is changing quickly from a technological and cultural standpoint. As leaders of lending organizations, we need to ask ourselves where things will be ten and twenty years from now. We need to think about what experience the next generation of business owners will want from us. By encouraging our organizations to innovate our processes, policies, and technology platforms, we will attract more diverse, open, and forward-thinking people.

Our businesses will see more long-term success

Having more female-run lenders would go a long way towards changing the statistics for female-run business. But nothing stops the male leaders in our industry from changing trends today and paving the way for our daughters to grow up in a more unbiased and equal world. •