• Unfavorable conditions in conditions in the stock market usually preclude the sale of stock in smaller, untried companies. This has a larger effect on small business since the smaller the amount of equity in a company, the lower the amount of debt it can safely carry. It also affects venture capital, because venture capitalists or private investors want to see a quick return on their investment. If the stock market is unfavorable, it becomes more difficult for the private investors to get their money back through marketable stock. They lack "liquidity." The inducement to venture capitalists and private investors is a combination of high risk and high reward.

• The smaller banks have less to lend. To protect their depositors and investors, they must be especially conservative about the risks that they take when lending to new or smaller businesses.

• The potential for investment has been adversely affected by federal regulatory and tax policy, with small businesses being the most vulnerable.

The impact of these factors on women-owned businesses is obvious. As shown by available statistical data and the Task Force inquiries, most women-owned businesses are small or new businesses. According to the Task Force inquiry, only 7.3 percent of the respondents had businesses which were initially capitalized at over $100,000, and 82 percent were capitalized at $50,000 or under. Moreover, women-owned businesses tend to be concentrated in areas, such as service and retail industries, that have both low gross receipts and a lower return on investment.

The Task Force survey also showed that of the women responding to the questions of how much and where initial capital was obtained:

• 67.3 percent were initially capitalized by "angel money"

• Only 10.8 percent obtained capital from a government program

22 percent obtained capital from commercial banks or venture capital firms (the latter equaling only .5 percent of respondents)

Only 14 percent of the businesses capitalized between $1,000 and $5,000 received bank financing. However, only 28 percent of those capitalized over $101,000 received bank financing.

However, these statistics do not take into consideration that women, among all new entrepreneurs, face problems that include business judgment--both from the entrepreneur and the source of capital. Moreover, financial institutions are precluded by law from keeping loan transaction records based on the applicants' sex. Therefore, if for no other reason than that so many investment and lending decisions are subjective, it becomes difficult to determine the extent of discrimination in the capital markets and its effect on the sources of capital women use.

Yet several things are clear. Women, more than men, have lacked access to, and knowledge about, the capital markets. They do not have the education or the training needed to go into business. They generally do not know how to develop business plans and other documents needed by sources of capital. This, combined with the general reluctance by financial institutions to invest in or lend to smaller businesses, creates greater obstacles for women than for men.

The Task Force feels that the fact that legislation--the Equal Opportunity Act of 1974--was deemed necessary to give women equal access to credit is a clear indication of the need for attention ot the problems women face. However, currently the compliance requirements for consumer credit are more stringent than those for commercial credit.

More can be learned about the realities of financing for women business owners from interviewing than from statistics. Therefore, the Task Force, in order to ascertain the problems, talked to both the sources of capital and to the women themselves in a series of interviews with commercial bankers, venture capital firms, and factoring and finance companies. The Task Force also held roundtable sessions with bankers and women entrepreneurs.

Commercial Banks

All of the bankers contacted indicated that very few women entrepreneurs had approached their banks for loans. However, they indicated that the reasons for turndowns were similar for all small businesses, whether owned by women or men, with the personal judgment of loan officers playing a role in ultimate decisions. The bankers cited the following reasons for turndowns, in approximate order of frequency:

• Inadequately prepared proposals

• No prior business experience

• Company under capitalized

No money of own to invest

• Lack of accountant or attorney input

• Lack of market survey or projection of earnings.

They also said that they did not consider the absence of a credit record to be a major problem; it was only derogatory information about a credit record that would adversely affect a business loan application.

The need for equity and collateral was often cited as a particular problem in lending to women. Bankers complained that the new business owner wants the bank to put up all the money. Said one banker, "Women are not looking for a loan; they're looking for a partner." Most banks indicated that they look for a two-to-one debt/worth ratio, depending upon the industry, and decreasing on the basis of track record and experience. As one banker indicated, "Women may have to have more."

The bankers also noted that most of their female applicants seemed to be younger women, better educated, more tenacious and better prepared. "They may have given it much, much more thought than men, who assume they can just jump in," said one banker. Although business experience varies among individuals, women were generally deemed deficient in "hands on" experience directly related to the venture they chose. "They usually worked in production or sales, have no financial experience and may be overly optimistic," one banker said.

Bankers generally prefer to make larger loans, both for the lower cost of administering the loan per dollar at risk, and because the larger company is usually better able to demonstrate its ability to pay. This means that a gap currently exists in the private financial sector's ability to meet the needs of not only all small businesses, but womenowned business in particular. This gap is widened by the perceptions of women held by the banking and financial community.

The financial community, when asked why they thought there were not more women borrowers, frequently cited reasons rooted in social and cultural conditioning. Among their comments were:

Women who have have earned good money and have worked to achieve are hesitant to leave the known for the unknown. They are not yet motivated to go out on their own. They feel that opportunities are better in large businesses.

This area of the country is not progressive--it's way behind the East and West coasts.

Women lack confidence.

Women don't read the financial press-they don't understand money. There is need for education in financial management and accounting.

Women are more timid about walking into a bank.

Nor do most banks make any special efforts to win women as commercial customers, although some are beginning to explore the possibilities in the consumer credit area. Two-thirds of the bankers interviewed were doing nothing, while one-third were making efforts to attract women as consumer banking customers. Where there is marketing activity for women as commercial customers, the efforts have been initiated mostly by professional banking women.

The fact that segments of the banking community see a need to focus on the problem may be witnessed in the growth of

women's banks--classically, a market perceived and a service delivered. At the end of 1977, six women's women's banks were doing business and two more had their charters approved (1). Four savings and loans and 17 credit unions were also opened.

These banks are organized on the premise that there is a strong need for a financial institution that is able to deliver special services to women, and these institutions take more time to help and to educate women than do traditional banks. Committed to ending discrimination against women while serving both males and females as customers, the banks' focus is on the credit needs of women. However, these banks are businessoriented, and they are as concerned as any bank with producing a reasonable return on investment.

The Task Force also asked the bankers for their reaction to expanding all the Equal Credit Opportunity Act (ECOA) regulations governing consumer credit to commercial credit transactions (2). Some of the responses given were as follows:

It would be an administrative nightmare, and would not make more credit available.

The impact would be smaller in the commercial area than it was in the consumer area, because there are fewer people served in the commercial area.

It had a positive effect on consumer credit, but might not have an effect on commercial credit.

It would change procedure, but not really the availability of funds. It would only affect paperwork.

Generally, the bankers pointed out that cumbersome compliance paperwork would add cost to the customer, make it tougher to get credit, and take valuable counseling time away from the very customers who needed it most. Nevertheless, many bankers conceded that "they agreed with its purpose," that "there was probably a need for some push," and "it made everyone aware of abuses." One banker indicated that it "may be necessary

because intent to discriminate is hard to find."

In considering the extension of the ECOA requirements on consumer loans to the commercial area, bankers fear losing that "free exchange" with their customers that they feel they now enjoy. They also feel that mandatory reporting requirements are unnecessary because they are currently complying with the intent of the legislation.

Of the women business owners responding to the Task Force questionnaire who reported having been turned down by a commercial bank, 82 percent indicated that they had been told the reason for the turndown. In addition, few complaints have been been received received on commercial credit by the agencies responsible for the ECOA enforcement. However, the Task Force feels that because credit judgment can be subjective, and discrimination difficult to substantiate and overcome, some changes in the regulations implementing the ECOA the ECOA for commercial credit may be warranted.

How do women themselves perceive the problem? Of the 1,502 women respondents to the Task Force's survey who indicated that they were one of the original founders of the business, 65 percent said that they had applied for bank credit. The average turndown rate was 38.4 percent in all credit encounters over the life of the business, and was greatest for those who started the business alone rather than with a partner or family member. (The Task Force, unfortunately, has no information to judge if this rejection ratio is higher or lower than for men.)

Of the women responding to the Task Force survey who had been rejected for bank credit at any time during the life of their business, 75 percent indicated that lack of collateral was a reason for rejection, 46 percent cited the bank's policy towards small business and 36 percent mentioned no previous business credit history. (Because of multiple answers being given, numbers numbers do not equal 100 percent.)

Statements to both the Task Force inquiry and the American Management Association study sum up views held by many, such as the 33 percent of respondents to the Task Force

survey who had been turned down for bank credit, and attributed rejection, at least in part, to the financial institutions' policy

toward women business owners.

I could not get credit, although I could cosign for my 18-year-old

son.

Banks give the impression that women should not be operating a business. They give us the runaround.

I had to furnish 100 percent collateral for a working capital loan, which the bank would not have required from a man of my experience.

I haven't had problems with financing because my husband took the lead. It was his securities that made the loan possible. But there's no doubt that if he hadn't been involved, I would have had problems.

My experience was that I wasn't given a professional answer, such as "We can't lend you the money for your business because it's less than a year old." I don't know if my husband could have gotten the loan, but it would have been handled differently.

The only time I remember prejudice against me was when I went to the first bank that I approached for a loan. Their justification in turning me down was that I was a woman going into a man's field.

A pattern of subtle discrimination seems evident in the experience of these women.

In addition to looking at banks, the Task Force examined other sources of financing in an attempt to discover both availability of funds to women entrepreneurs and women's experience in dealing with these sources.

Small Business Administration

The Small Business Administration (SBA) is the Federal Government's major source of

financial assistance to small businesses. It is the nation's "lender of last resort," and administers several types of loan programs, primarily in the form the form of guarantees to commercial banks to reduce some of the burden of the risk from banks (3).

The Task Force survey of bankers asked respondents to assess their experience with SBA. The response did not show any common experience or difficulty relative to the size of the bank. It did show, however, concern for the quality of SBA management and technical experience, the cost-effectiveness problem and the paperwork burden. Bankers and entrepreneurs alike questioned the responsibility of a federal agency to provide money on any basis without proper screening or access to adequate management and technical assistance. Some bankers stressed the need for more SBA direct loan assistance, with one commenting, "If you have to rely on a guarantor to support a loan, it's a bad credit risk."

Bankers also expressed the feeling that the spread between the allowable interest and the cost of administration is too low for SBA guaranteed loans under $50,000. "If there is no profit," said one banker, "why should we make the loan?" Bankers also feel that the turnaround time on an SBA loan is too long, and that these loans tie up money for too much time at too low a profit. These factors have at least two diverse results. Business owners shop banks, which can mean that a bank loses a potential client, and small businesses cannot survive their cash flow demands when turnaround time is unreasonable.

When asked about their use of the secondary market (4) as a means of increasing cost effectiveness, many indicated that they were just beginning to explore this mechanism. Some bankers felt that it could prove extremely useful.

Essentially, both bankers and entrepreneurs felt that SBA loans and guarantees required too much red tape and paperwork, and that the program should be simplified. The Task Force noted, however, that SBA is currently under severe handicaps in terms of its own monetary resources and personnel (5) and the low rate of bank participation. For example,

in fiscal year 1977, only 695 of some 14,500 banks in the U.S. financed more than 25 guaranteed loans (6).

Venture Capital Firms

The Task Force surveyed 25 venture capital firms and discovered significant barriers to their being a source of capital for women entrepeneurs. It found that:

• Women are not fully informed about venture capital opportunities. Firms do not advertise; they rely on word-ofmouth in a business network that has traditionally excluded women.

• Investors do not perceive women as a separate market segment for their services. Said one, "If I go after women, I'm afraid that all I'd do is flush out the beauty parlors."

• Women business owners are frequently in fields that do not lend themselves to large scale investment, which in turn leads to rapid growth, high sales and an eventual public stock offering. As one respondent put it, "Where is the woman. who will walk through my door asking me for money for a computer software company? I'd fund her in a minute."

Less than 20 percent of those surveyed had been approached by a woman business owner seeking funds. In the past two years, the surveyed firms have funded 13 propopals by women; six have already failed. Of the 7 still going, none shows a potential for growth to the point of going public. Some 50 percent of the fundings were by 301(d) SBIC's (formerly known as Minority Enterprise Small Business

Investment Companies-(MESBICs)), which are federally supported to provide capital to socially or economically disadvantaged firms. Selection criteria for 301(d) SBIC's include factors other than rapid financial growth.

The lack of background in finance and business is significant. One venture

capitalist said, "Most venture opportunities develop from managers in their late 30's, with 10 or 15 years of solid management experience behind behind them. There are mighty few women in that bracket who want to go on their own. However, there are many bright women now starting out, and 10 to 15 years will show a big difference."

The Task Force looked specifically at the federal government licensed venture capital corporations (Small Business Investment Companies (SBIC's) and 301(d) SBIC's) to determine their experience with women business owners. The outlook was not bright, in terms of either available funds or outreach to women. Many of these corporations are both undercapitalized and illiquid. Less than 30 percent of those surveyed are not funding proposals, and none is soliciting projects specifically from women. There is

substantial confusion among 301(d) managers over whether women are eligible for funding in a program for "socially or economically disadvantaged" groups, since the program has been traditionally targeted for racial minorities. Some feel that they would, however, fund only women who were members of a racial minority group.

The Task Force found that venture capital is in short supply for all small businesses, and for women-owned businesses in particular. Some investors feel that changes in tax law would be helpful, as well as changes in regulations on depreciation, surtax exemptions, institutional investment and small offerings exemptions. Although the Small Business Investment Act does not presently allow SBIC's to give short-term debt or consumer loans, a few SBIC managers have suggested changing the statute. The Task Force feels, however, that this would have the effect of simply transferring the interest burden to the small client businesses that can least afford it, and that it would not be consistent with the intent of the legislation.

Supplier Credit, Factoring and Finance Companies

Obtaining credit from suppliers on the purchase of goods used in business is another