Women are building businesses in all sectors. They are creating jobs, supporting communities and making a significant economic impact — 1.5 billion+ contributed to the national economy each year.

But women entrepreneurs are not getting the funding they need. In fact, while women represent 38% of entrepreneurs in our country, they receive less than 20% of traditional bank financing and less than 4% of venture capital.

The situation is even more challenging for Black and Indigenous women and Women of Colour (BIPOC). A 2021 survey of Black women entrepreneurs found that 58% identified lack of financing as a key obstacle to growing their business. Indigenous women start-up businesses at a high rate, but are less likely to be able to sustain and grow businesses over time, in part due to a lack of accessible, affordable financing. 

 
Here are five reasons why

#1 - Unconscious Bias

WEKH research shows that front-line staff in lending institutions are more likely to ask women about the risks and challenges associated with their enterprises while providing more opportunities for men to talk about their vision and opportunities for business growth. Funders may have other unconscious biases that affect their decision-making, such as ideas about women’s businesses being ‘passion projects’ or a ‘second income for the family.’ Interestingly, both male and female staff and investors exhibit these gender biases. When it comes to venture capital, there is a greater tendency to focus on the content of men’s pitches while assessing women on their presentation style or even their appearance. Indeed, a Harvard study found that investors overwhelmingly preferred pitches made by men compared to pitches made by women, even when the content of the pitch was identical.

#2 - Overt Discrimination

Black, Brown and Indigenous women continue to experience overt discrimination from some funders. A 2022 national survey conducted by WEOC found that racialized women experienced bias or discrimination three times out of ten when applying or pitching for funding. In our own AFIA Focus Groups, a First Nations woman entrepreneur shared her experiences with banking: “If I come in with my moccasins, and beaded earrings, nine times out of ten they will call a manager to go through my IDs and everything else.” A Black woman entrepreneur talked about going into her bank to deposit cheques from business clients and having tellers hold the cheque up to the light to see if it was real, ask for additional pieces of ID, and make comments like: “this is a large amount of money, where did you get it?” 

#3 - Sole Proprietorship

A related issue identified by WEKH is that women are less likely than men to incorporate their business ventures. Additionally, they are more likely to operate as ‘self-employed’ when offering professional services, rather than registering as a business. Indeed, while women were majority owners of just under 17% of SMEs in Canada in 2020, they made up 37% of all self-employed people. These patterns have implications for access to commercial loans and venture capital. 

#4 - Sludge

A 2022 report by WEOC highlights that women entrepreneurs often experience too much ‘institutional sludge’ when applying for financing, which leads many to stop applying for formal sources of funding. This ‘sludge’ involves the “unnecessary points of friction and disagreeableness in the funding application process.” Women choose to use their valuable and limited time on other business priorities, and rely instead on personal credit (including credit cards and lines of credit), savings, and money borrowed from people close to them. While it is common for entrepreneurs to use their own resources to start up a business, these forms of capital are often insufficient to grow a business. In addition, personal credit puts personal assets at risk and usually comes with higher interest rates, affecting profitability and growth potential.

#5 - Colonial Legacies

Section 89 of the Indian Act prohibits use of reserve land, including family homes, as collateral. The Act also prohibited women from owning or having rights to the family home, a situation which continues to affect the percentage of women who are named on housing titles. In addition, there are few to no financial institutions located on or near reservations, meaning that many Indigenous people do not have opportunities to develop relationships with funders or trust in such institutions. While Indigenous people in urban areas do have greater proximity to these institutions, the distrust remains. Indeed, WEOC’s 2022 national survey found that Indigenous entrepreneurs are “three times more likely to feel that banks would be biased or discriminate in their dealings with them.” Legacies of colonialism continue to affect levels of assets and credit scores for Indigenous and Black peoples in Canada, which also can create barriers to financing. 

AFIA DEI Index was created to address these systemic barriers to financing for women entrepreneurs in all their diversity. By working with banks and other funders who are committed to change, we can shift culture, policies and practices to create equitable and positive experiences for women entrepreneurs and greater access to financial capital to grow their business ventures.  

Sources:

1. Bobiwash, H. (ed). (2020). Indigenous Women Entrepreneurs in Canada: Summary of National Survey Findings. National Aboriginal Capital Corporations Association (NACCA). https://nacca.ca/wp-content/uploads/2020/07/NACCA-IWE-Survey-Report.pdf
2. Cukier, W., Ying Mo, G., Chavoushi, Z.H., Borova, B., Osten, V. (2022). The State of Women’s Entrepreneurship in Canada. Women Entrepreneurship Knowledge Hub (WEKH). https://wekh.ca/research/the-state-of-womens-entrepreneurship-in-canada-2022/
3. Kaplan, S., Menking. A. (2020). Shattering the Second Glass Ceiling: Financing Women’s Entrepreneurial Ventures. Women Entrepreneurship Knowledge Hub, Institute for Gender and the Economy. https://wekh.ca/research/shattering-the-second-glass-ceiling-financing-womens-entrepreneurial-ventures/
4. Women’s Enterprise Organizations of Canada (WEOC). (2022). Bootstrap or Borrow? Improving Equity and Access to Financing for Women and Non-Binary Entrepreneurs in Canada. https://weoc.ca/site-content/uploads/2022/11/WEOC_Bootstrap-or-Borrow_FINAL-EN.pdf