What Every Feminist Should Know About The American Financial System
By: Karen Jenson
When I started my career as a commercial banker in 2011, my personal theme song rang through my head: “Anything you can do, I can do better! I can do anything better than you!” Those lyrics had stuck with me since the age of seven, when I saw my babysitter’s high school production of Annie Get Your Gun. And those words came back to me thirty years later, as I surveyed the banking landscape from my freshly-minted Masters in Finance perch. “I’ll just do business with my smart, entrepreneurial girlfriend-clients.”
I have since gone golfing with male clients many times. The composition of my bank credit-training class should have been a subtle tip-off about the demographics of the banking industry: three females out of 25 students. Rude awakenings can be crushing. I’m extremely lucky to have gone so long without experiencing the heartbreaking discrimination that I encountered upon joining the banking world. As a result, I became determined to even the playing field, which led me to ask: why are there are so few female-run companies that are bankable or debt-worthy (the most stable and affordable form of capital)? Well into the 1970s, women were not allowed to open their own credit lines without their husbands. To discover a similar state of affairs 50 years later infuriated and frustrated me.
I am fortunate that I can see from the inside exactly how companies are successfully underwritten by banks. I believe that by harnessing debt and discipline, we as a country and we as women can achieve what seems like an impossible feat in today’s economy: organic revenue growth, scalability, and preservation of the original owner’s equity and creative control, sans private investors or venture-equity.
According to a 2014 American Express report, the growth rate for female-founded companies from 1997–2014 was 68%. Yet when it comes to ownership, American women account for only two trillion of the current 18 trillion US GDP– just 11% (Fact Sheet: Gender Differences in US Businesses, www.nwbc.gov). American women boast a 2:3 ratio: 10 million businesses compared to 15 million male-run businesses (not including public, non-profit, or foreign-owned companies) which is close to parity from a volume standpoint. However 40% of all American businesses only producing 11% of our GDP indicates a grave distance from 50/50 output and I don’t believe this is because women are not hard workers, or not bringing value to the economy. My dreams of lending millions to female entrepreneurs slipped further upon realizing that less than 200,000 women-run companies — or less than 2% of all women businesses — have revenues over a million dollars.
Based on data from a survey of female business owners by factfinder.census.gov / The National Women’s Business Council in Washington, D.C., the number of American female-led companies stagnates dramatically at the $50,000-$100,000 revenue range. This is the exact inflection point at which the number of male-run companies skyrockets. The numbers vindicated my own observation from within the banking industry: that women must deal with an overlooked glass ceiling in business growth and lending.
To break through, we need to understand exactly why women-run companies often do not scale nor add employees (89% of all women businesses are sole proprietorships). Although the most stable and affordable source of capital, banks increasingly avoid loans in the range necessary to scale and advance most women-run enterprises. Loans under $100,000 take just as much overhead for lenders as larger loans — if not more. Furthermore, even if these women-run companies have years of operational sustainability and positive cash flow, banks often require hard collateral and personal wealth, as a double and triple backstop to the loan (based on credit policy and increased federal regulation). Fixed assets and personal wealth are two things women historically lack, but these factors add perceived backbone to their businesses for commercial bankers. Without that extra security, many women-run companies are deemed “riskier”. Compounding the problem is women’s tendency to gravitate toward industries that are collateral-light or service-oriented: industries without fixed assets or inventory that banks would consider tangible, lendable assets (Fact Sheet: Industry Gender Differences www.nwbc.gov).
What this calculus does not take into account is how well American women perform with business ownership and scalability through affordable and available debt capital. Grameen Bank and global micro-finance efforts have proven that women are exceedingly reliable borrowers, but they have not been integrated into our own country’s lending practices. Instead, the current system obeys over two centuries of institutionalized sexism in viewing women businesses as unworthy of credit, rather than applying a modern, risk-weighted advantage to their credit profile.
This snapshot of the banking industry captures the sinking feeling American women experience upon graduating and entering the real world, only to find it doesn’t at all reflect our educational experience, our outlook, or even our consumer perspective. Statistically, it would only be recognizable one out of nine times. Despite outlier success stories like Spanx founder Sara Blakeley, the hard truth is that American women business owners are not on equal footing if they own only one-ninth of US output.
I hope that by shining some light on this unsavory reality, American women with entrepreneurial dreams can drop their preconceptions. Educated and motivated American women entrepreneurs need patient macro-microfinance funding opportunities through traditional and established sources. Kickstarter and crowd funding are not enough. Credit card debt, merchant ACH advances, and venture capital and angel money can be expensive, unavailable, opaque, and/or impatient, and these forms of capital are often entirely controlled in their distribution by men.
The real danger is the lost potential of women’s creative vision, intelligence, and education. The companies women establish are essential investment and lending opportunities: capable of accelerating job growth, alleviating poverty, and redressing gender-inequity in the U.S. and around the world. We have the opportunity to increase American production and kick start the economy, much like when women stepped up during WWII. To do so, we must better understand how money is distributed downward into the hands of deserving entrepreneurs through our federally-linked financial system. We must reshape our financial system to reflect our values and to support our upward mobility.
Our dreams deserve better leverage than falling into the hands of opportunistic investors, or slipping through gaps in outdated and sexist credit policies, or falling down the rabbit hole of inefficient government programs and limited microfinance efforts. A more gender-balanced society, echoed by the companies we create and celebrate as a country, will take time to build. But it can be more quickly realized by operating outside of the outdated and inflexible institutionalized lending standards that unduly burden female entrepreneurs. Addressing this issue, specifically in a post-credit-crisis, Dodd-Frank-one-size-fits-all legislative environment, is just as imperative as it is to address sexual predatory practices of men in power. Ask any and all other female politicians in Congress to address this issue if you want true power, and fundamental change to happen in your and your daughter’s and granddaughter’s lifetime.
Karen Jenson is a feminist banker living in Williamsburg, Brooklyn after helping found an afterschool expressive arts program for kids in Park City, UT as an AmeriCorps VISTA, www.arts-kids.org . She studied Art History at Northwestern University before “taking her medicine” and getting her MBA in Finance on a full scholarship at the University at Buffalo back in her hometown.
Ellevate Network is a global women’s network: the essential resource for professional women who create, inspire and lead. Together, we #InvestInWomen.
Originally published at www.ellevatenetwork.com.