by Heike Wipperfurth, Crain's New York Business, Inc.
http://www.crainsny.com/
Four years after starting Clever Carriage, a handbag and fashion accessory business in Manhattan, Kim Isaacsohn had reached a crisis point. She had a choice: get a bank loan to bridge the gap between when she paid for the production of goods and when her customers paid her; or turn to expensive financing from factors.
After one bank rejected her loan application, Ms. Isaacsohn got lucky. She heard about a woman who had just landed a loan from FleetBoston Financial. Ms. Isaacsohn quickly got in contact with the bank. One week later, the South African-born fashion designer had her first bank loan, a $100,000 line of credit from FleetBoston.
Across the city, increasing numbers of women are following Ms. Isaacsohn's path. In record numbers they are founding companies, relying initially on their own savings, then their credit cards, and then, finally, turning to banks.
Administration, lending to women in the New York metropolitan area is soaring. In the first eight months of its fiscal year beginning Sept. 1, the SBA alone approved 282 such loans, for a total of $42.7 million. That marked a dramatic increase over the 221 loans for a total of $32 million for the same period last year.
Highly tailored
Faced with that burgeoning demand, a few financial institutions like American Express and FleetBoston have recently launched special efforts to snare as much of this new business as they can. Their highly tailored endeavors range from sponsorship of women's business groups to highly controversial undertakings to give women special consideration in the loan approval process.
By specifically targeting women, New York's financial institutions are actually following the pioneering example of Wells Fargo & Co. The big California-based bank boasts that its five-year-old women's lending venture has been a huge success, generating over $6 billion in new loans.
Now such efforts are taking place in New York. "We want to be the bank of choice for women," says Teresa Cavanagh, director of FleetBoston's Women Entrepreneurs' Connection, which officially launched in June. "It's a market that shouldn't be ignored."
Some lenders, though, have shied away from these special attempts. Chase Manhattan Bank, which dominates the small business market in New York, abandoned its 1997 effort to target women entrepreneurs through a direct mail program to members of a group called Women Inc. Rather than singling women out, today the bank strikes a more egalitarian stance. "We err on the other side," says Ruth Salzman of Chase's Community Development Group. "We open our door for everybody."
Other top SBA lenders to women, such as CIT Small Business Lending Group and Banco Popular, North America, vow that they will use aggressive marketing and referrals from professionals such as accountants and mortgage brokers to reach women business owners.
FleetBoston has set aside $2 billion over the next five years to finance women entrepreneurs, particularly in New York. What inspired FleetBoston was research showing that women-owned businesses now make up 60% of all start-ups.
The right formula
Ms. Cavanagh notes that there are now 600,000 women-owned businesses in the state-37% of the total-that generate $3.4 billion in annual sales. "You can't call women-owned businesses a segment anymore," says Ms. Cavanagh. "It's a driving force for small business."
Some critics maintain, however, that the efforts of all lenders, regardless of how finely they focus their marketing, will likely come up short as long as they blithely assume that there are no differences among borrowers. More specifically, the critics note that lenders use consumer credit scoring formulae that fail to take into account the fact that women business owners often lack the long credit histories most men have.
"We know that women who are applying for business loans aren't getting them," says Iris Burnett, a co-founder of Count-Me-In.org, a non-profit, micro-loan fund organization in Washington, D.C. She charges that the discrimination happens in the application when women, for example, may be downgraded unfairly because they left work to take care of children or because their credit history is in their husband's name.
As banks begin to reach out to women business owners and as those women get increasingly comfortable with the idea of taking out loans, there is clearly much learning to be done on both sides. "I think the enthusiasm is there but I think that banks may be two steps ahead of themselves," says Suzanne Tufts, president of the American Woman's Economic Development Corp. in New York.
Happily, she notes that lenders do have an
extra incentive to reach out and be especially accommodating of women. "Women are much more risk-averse than men," she says. And as such, they generally prove to be better at paying off their loans.
Copyright 2000 Crain's New York Business, Inc.
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