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Being unable to get business loans is a big barrier to women in Britain becoming entrepreneurs, with single women, in particular, struggling to access funds to start a new business, typically because they have less collateral for securing a loan, according to new research.
The study by Robert Sauer from the University of London, Royal Holloway College, and Tanya Wilson, from the University of Stirling was presented at the Royal Economic Society’s annual conference in Brighton in March.
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.
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 2008 crash have been mostly driven by the growth in self-employment.
The researchers say 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.
They say 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, say the researchers, 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”. They add that 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.
The authors say: “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.”