Financial Update (July-Septemer 1997)

Workshops Spotlight Women's
Access to Credit and Capital Issues

W hy do women business owners have difficulty securing financing for their businesses? What can be done to improve women's access to credit and capital? These are two questions that were debated by women business owners and banking and financial representatives at two expert policy workshops held at Sixth Federal Reserve District branches in New Orleans and Atlanta this summer.

The two workshops were part of a series of 10 held throughout the nation examining issues surrounding women's access to credit and capital. The workshops were sponsored by the Federal Reserve Board of Governors, the Small Business Administration's Office of Women's Business Ownership and the National Women's Business Council. Recommendations from the workshops will be forwarded in a report to Congress and the president later this year.

New Orleans Workshop Focuses on Welfare to Small Business Ownership

Speaking at the New Orleans workshop, Susan Phillips, a member of the Federal Reserve's Board of Governors, said, "Small business is crucial to the economy, and the real strength of our financial system is diversity. Through these workshops, we want to not only find out what is working and what is not working to ensure women have access to credit and capital but also find out what we can do to help facilitate the process."

In New Orleans, workshop participants, including women business owners and banking representatives, focused on the steps that could be taken to help move women from welfare to small business ownership through microenterprise loans, or loans typically less than $5,000.

Workshop participants were in consensus on a number of recommendations. These included developing programs to test women for entrepreneurial aptitude, training women through mentoring/protégé programs, establishing incentives for banks to make microenterprise loans and forgiving loans if a business stays within its start-up community for a period of time. Workshop participants also recommended that state and local governments develop public/private partnerships to sponsor a "one-stop shop" to identify welfare recipients and their needs, identify welfare employers and their needs, institute training and mentoring components for welfare recipients and initiate a credit rehabilitation component for welfare recipients.

Atlanta Workshop Examines Women's Access to Midrange Financing

The Atlanta workshop focused on developing solutions to help women move from using personal financing, such as credit cards or family support, to securing midrange financing, such as bank loans, to expand an established business. In one session, workshop participants examined the role in the loan process of credit scoring, which is a method of assigning a single quantitative measure, or score, to a potential borrower that reflects the borrower's relative chance of going into delinquency or default.

In a consensus-building session, workshop participants recommended that banks not only be required to disclose to commercial customers if credit scoring is used to determine creditworthiness but also how the bank evaluates and weighs information in a loan application.

If a bank turns down a loan, the participants recommended that the institution be required to disclose why the loan was turned down. Participants also recommended that the bank refer would-be borrowers to counseling centers that could provide information on alterative lending institutions that might consider the loan or advise applicants on what they could do to bring their application up to a bank's creditworthiness standards. A general recommendation was made that incentives such as tax credits should be provided to help foster more small business lending.

In discussing the prospects of moving the recommendations forward, Phillips said, "We have found that banks are willing to cooperate and help out on issues like these — sometimes they just need a little push. Right now, while the economy is good, banks can be more creative, and I would like to see them take a bigger role on this issue."

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