Being unable to get business loans is a big barrier to women in Britain becoming entrepreneurs. Single women, in particular, struggle to access funds to start a new business, typically because they have less collateral for securing a loan. These are among the findings of research by Robert Sauer and Tanya Wilson, to be presented at the Royal Economic Society''s annual conference in Brighton in March 2016.
Self-employment and small businesses are becoming more important in the UK, and almost half of all privately employed people work at a small business. Most of the recovery after the Great Recession has come from this sector. There is an important gender angle to this: between 2009 and 2014, the number of self-employed men rose by 6%, but the number of self-employed women jumped by 22%.
The new study analyses data from the Wealth and Assets Survey, and finds that women suffer more from being unable to get business loans. But for every extra £1,000 they are able to borrow, their likelihood of starting up their own business rises by 8.5%. This effect is even stronger for single women. The authors comment:
''Public policy programmes that encourage business start-ups are generally too restrictive to affect a substantial proportion of single women. For example, the New Enterprise Allowance, launched in 2011, provides individuals with a weekly allowance for the first six months in self-employment and allows them to apply for a government-funded loan to help with start-up costs.''
''But eligibility for the programme is limited to those who were previously unemployed. The government could consider extending its start-up loan programme to liquidity-constrained single women.''
Self-employment and small business activity have become increasingly important features of the UK economy. Small firms now account for 48% of all private sector employment, and increases in total employment since the start of the Great Recession have been mostly driven by the growth in self-employment.
Another striking pattern that has recently emerged is sharply different growth rates between men and women in the proportion self-employed. Labour Force Survey data show that from 2009 to 2014, the proportion of men in self-employment increased by 6%. Over the same period, the proportion of self-employed females jumped by a remarkable 22%.
Despite the relatively large growth rate in self-employed females, obstacles for women that wish to engage in entrepreneurial activities still remain. In the area of small business operations, one of the main problems many entrepreneurs face is liquidity constraints.
Liquidity constraints are present when it is difficult for an aspiring entrepreneur or current business owner to procure the funds necessary to start a business or expand an existing one. A glass ceiling may emerge in self-employment when women suffer relatively more from liquidity constraints than do their male counterparts.
Using data from the Wealth and Assets Survey, this study provides evidence that there are indeed substantial gender differences in liquidity constraints in the UK. This is based on the finding that the propensity to start a new business increases with personal wealth, and this relationship is stronger among women than men. The relationship is strongest among single women. The researchers estimate that relaxation of financial wealth constraints by only £1,000 would lead to an 8.5% increase in the probability of a single woman starting a new business.
There are several possible explanations as to why liquidity constraints are most severe for single women. It could be that single women have less collateral necessary for securing a loan. There may be gender discrimination in the granting of credit. It is also possible that single women are more risk averse and choose not to borrow money even when borrowed funds would be forthcoming.
Discrimination and differential tastes for risk are generally hard to identify empirically, but the data do reveal that women are less likely than men to acquire formal loans when starting a business. Moreover, the lower propensity to acquire a formal loan among single women seems to be the consequence of a lack of collateral.
If lack of collateral is the main obstacle preventing a single woman from starting a new business or expanding an existing one, then a new private initiative or public policy that helps channel sufficient collateral to liquidity-constrained single women would be of great economic and social value. Public policy programmes that encourage business start-ups do currently exist, but they are generally too restrictive to affect a substantial proportion of single women.
For example, the New Enterprise Allowance, launched in 2011, provides individuals with a weekly allowance for the first six months in self-employment and allows them to apply for a government-funded loan to help with start-up costs. But eligibility for the programme is limited to those who were previously unemployed. The government could consider extending its start-up loan programme to liquidity-constrained single women.
''The Rise of Female Entrepreneurship'' by Robert M. Sauer and Tanya Wilson is forthcoming in the European Economic Review, 2016.