Introduction
Debt financing is the way for businesses to borrow money from various forms of lenders like lenders, banks, and other financial institutes over the period. Debt financing is an important source of funds for a business allowing access to capital for growth and operations without the dilution of ownership. This provides a flexible way of funding investment in flexible form through leverage of cash flow with managing tax benefits by deduction of interest payments. Debt financing is a very important source of funds for female-led entrepreneurs to help in scaling, building a strong credit profile, and aligning to growth strategies and cash flow requirements. However, in recent times, female-led businesses in the UK continue to face significant gender inequality, particularly in situations of securing loans and debt financing which have affected their credibility in the market. There are clear indications through various studies indicating the difference in funding for female-led businesses compared to male-led businesses presented with similar business plans. The report will mainly evaluate the unequal debt financing in female-led businesses compared to male-led businesses. There will be a critical analysis regarding the state of debt financing based on a female-led business. Various government policies for supporting women entrprenusres will be discussed along with analyzing the efficiency of government policy in addressing issues and required suggestions will be provided.
Critical analysis of the debt financing state of female-led businesses
Academic theories highlighting the disparity in female-led business
Credit gender gap: the credit gender gap theory is used for the analysis of the credit gender gap in female entrepreneurs in the UK where female entrepreneurs face higher rejection of loans compared to male counterparts (De Andrés et al., 2021). The gap is caused due to various factors like gender discrimination, risk aversion, and structural differences between male and female-led firms.
Social gender Norms: the analysis in research of the social gender of entrepreneurs has an impact on bank finance, suggesting that gender norms influence access to finance (Peter and Gupta, 2024). Women entrepreneurs usually face higher interest rates and more strict collateral requirements.
Capital Structure Theories: The capital structure theories will involve the use of pecking order theories and trade-off theory analyses have been undertaken for the analysis of the preferability of female-led businesses. The indicated theories present that UK-based female owners prefer internal financing over external financing for easy access to credit.
The number of female entrepreneurs and business owners in the UK is growing in UK however the potion of small businesses operated by females is falling short in the selected category. The contribution of female-led businesses contributes to about £105bn to the UK economy the issue of external capital has been one of the key issues causing a halt to a huge amount of potential productivity, innovation, and competitiveness (Storey, 1994). Despite the progress in other areas of progress women-led businesses often struggle to secure the same level of investment as male-founded businesses. The debt financing for every £1 of investment only 2p is going fully female businesses and 85p is hedging towards the male founded business, this indicates the function of the credit gender gap in the passage of loans for genders (365finance.co.uk, 2024). The position of gender gap in loan finances for small UK businesses owned by women has widened in 2022 where an average of £174000 is received through credit (British-business-bank.co.uk, 2023). Whereas concerning male-owned businesses, merely 34 percent of the debt finance part accounts for about £507000 showing 5 times more options for credit.
The impact faced by female-owned businesses for receiving capital through debt financing has faced systematic biases from the investors, showing negative social gender norms. The investor biases show that male entrepreneurs in the UK tend to receive more favorable assistance for their business plan which results in the disparity of funding opportunity. This fact has been presented by a treasury report which has discovered that female entrepreneurs receive 157 times less funding than that of male-owned businesses (smecapital.com, 2023). These factors have effectively indicated that female-owned businesses lack access to tools, resources, and financial service sectors affecting the advancement of female-owned business owners. The risk perception analysis of the debt financier has over the years affected negatively the finances of female-led businesses. The main factor had been based on the historical basis, where women-owned businesses are underrepresented in high-growing sectors. This results women women-owned businesses historically racing less debt funding resulting in establishing a high-risk perception. The other main factors have been the historic effect of networking opportunities for debt financing for female-owned businesses. The female owners reported the isolation and lack of access to effective networks providing mentorship and advice concerning various financial opportunities. This has to a great extent negatively affected female-led businesses in sourcing of debt finance funds. The other factors like the impact of economic conditions on the debt attainment capacity of female business owners. The effect of the financial crisis through debt financing for female owners in the situation of COVID-19 and the rise in the interest rates of 2022 where the female owners faced issues in taking debt and higher focus was on equity financing (port.ac.uk, 2023). In recent times the debt finances for female-led businesses have considerably improved over time due to more openness there have been significant barriers in debt financing. Thus continued efforts for the reduction of biases in investment opportunities, enhanced networking, and implementation of supporting policies are required.
Critical analysis of initiates of government policies for supporting women entrepreneurship
There are various initiatives by the UK government in foe4m of policy like “Investing in Women Code”, “Taskforce on Women-Led High-Growth Enterprises” and “other government support” in the form of grants, swift loans, and entrepreneurial roles.
Investing in Women's Code
The code is the commitment undertaken by the financial institutions in the UK to actively support women entrepreneurs with access to funding, resources, and tools. The main aim of the government policy is to increase the number of successful female leaders in the UK. The main pledge of the initiative of the government is to close the gender gap in business financing women-led ventures. The main points of focus of the policy of the UK government is on:
Focusing on female entrepreneurs
the code especially targets women business owners in the UK making it easier to secure loans, debts, and other financial support for the development of their businesses.
Signatories from the financial sectors
uses the code to involve various types of investors like banks, angel investors, and other financial institutions for signing with the code (gov.uk, 2024). The main objective of including various types of financial partners is to actively work towards increasing the funding of women-led businesses.
Core commitments
the code signatories provide three core commitments which are designating responsible members to senior management teams, and collecting and reporting data via the code partners (fi.org, 2022). Finally adapt to the internal practice that aims at improving female entrepreneurs accessing the tools, finance, and resources and review them annually.
The membership of the c committee has grown over the period as the signatories are confident in the long-term success of the commitment. The commitment in the code is specific and achievable enabling the finance providers to consider the intuitive to be meaningful. The other practically beneficial points are easy collection causing no burden on the customer and the third parties of the code act as trusted third parties (fi.org, 2022). The third party enables the protection of data resulting in the data being saved and the performance system measurement is voluntary supporting women rather than creating league tables.
Taskforce on Women-Led High-Growth Enterprises
The global task force for women is intuitive by the ministries for women and equalities in 2022 with is chaired by Anne Boden the CEO and founder of Starlink bank. The main objective of the task force is to increase the number of female entrepreneurs by half by the period of 2030 (gov.uk, 2022). The initiative follows a package of initiatives for the improvement of employment opportunities for women.
Promotion of gender equality and economic growth: the task force has eventually led to the improvement of economic growth by enabling the growth of women-led businesses. The task force has also led to losing the gender gap by providing loans at a cheap rate and focusing on diversity which will benefit the company financially.
Placement of Women Entrepreneurs for Driving UK Tech Superpower Ambitions:The taskforce has identified and mentioned that women entrepreneurs of the UK shall be placed at the forefront of enabling UK tech superpowers by 2030 (service.gov.uk, 2024). This had been based on the UK's international technology strategy of becoming the most innovative economy in the world.
Identification of critical sectors for moving the fund: the analysis of the task force has indicated that a limited number of partners have signed for the position of the investment food chain. This task force promotes a higher number of investment partners to be included for uniquely positioning lead diversity change among highly growing enterprises. The code signatories need to be effectively positioned for the growth of the women-based enterprise for the company.
Other government support ( UK Business Connect)
The UK Business Connect helps female entrepreneurs by providing access to a network of industry experts, potential collaborators, and funding opportunities that are specially designed for women. Various programs like “Women in Innovation” allow women entrepreneurs to scale their innovative ventures more efficiently.
Network opportunities improvement
The process involves the connection of female entrepreneurs with potential partners, investors, and industry experts through the use of vents, workshops, and online platforms.
Business advice and coaching
The process involves tailored guidance on various aspects like market research, funding applications, and business development (ukri.org, 2024). This process effectively leads female-oriented businesses to scale up their ventures.
Relevant access to Funding
The program of the UK government helps female entrepreneurs in the identification and application of relevant grant schemes and funding opportunities for the support of women in innovations.
UK Women in Innovation Program
The Innovate UK Women in Innovation program was launched in 2016 to encourage more women to apply for UK funding opportunities. The inception of the program has successfully enabled brilliant women across the UK the achieve business success.
Examination of the efficiency of government policy in addressing the financial barriers and relevant suggestions.
Efficiency of “Investing in Women's Code”
The government policy of the women's code has effectively improved the female business by getting the program backed by major financial institutions enabling buy-in from key stakeholders. The data-driven approach is followed in the policy by the signatories thus enabling women entrepreneurs for measurable progress in tracking their financial needs (Yu et al., 2022). There is a high focus on transparency resulting in a public commitment to code resulting in higher availability of debt financers towards female-led business.
However, there are certain limitations to issues like the participation code is not necessarily limiting to organizations committed to gender equality thus limiting the opportunity of funds for female-led enterprises. The other challenge is the lack of consistency and ineffectiveness in code commitment across different orgnsiation resulting in the complex process of attaining debt by female entrepreneurs. The other issue faced by female entrepreneurs in this policy is difficulty in securing loans which has been the result of biased lending practices and lack of collateral (british-business-bank.co.uk, 2024). The effectiveness of the code in overcoming the barriers is yet to be realized which will provide a comprehensive outlook for female business owners.
Efficiency of “Taskforce on Women-Led High-Growth Enterprises”
The Taskforce on Women-led High-Growth Enterprises has made significant improvements regarding the addressing of financial barriers faced by female-led businesses in the UK. The task force has effectively led in bringing together various key stakeholders like government, private sector investors, and business leaders and identifying and mitigating the unique challenges faced by women entrepreneurs. The task force has undertaken required research which has indicated that female-led businesses often face less investment compared to male entrepreneurs. The task force has effectively recommended various debt investment firms who have signed the investment in women's code to female-owned businesses with at least one female founder at 35%, this was increased to 40% of signatories in 2023 (gov.uk, 2024). Thus raising awareness among investors about potential women-led enterprises and practicing more inclsuisve funding practice.
However, with such an advantage the task force on women-led high-growth enterprises indicted three critical sectors that might result in problems in addressing the financial barriers in providing funds to female-owned businesses will be undertaken. The first issue is limited partners where only two partners of the task force have signed to provide lead diversity to high-growth female enterprises. The other issue is the underrepresentation of growth funds among signatories in the categories. This shows the challenge in late-stage funding for the high-growth business of female-led enterprises. Similarly, a funding gap is observed in growth female-led enterprises outside the sectors traditionally attractive to debt capital fund managers.
Efficiency of “UK Business Connect”
UK Business Connects is mainly considered a fairly efficient platform that shows the seeking support of the connections for the small-medium enterprises. Medium-sized enterprises due to the reason of the comprehensive range of services get easy access to the information. The government backed and allowed the business.
Relevant suggestion
- To improve the investment in women's code the organising of network events, getting feedback from entrepreneurs and policy advocacy can be undertaken. The issue of network events will be effective in connecting women entrepreneurs with potential investors and lenders. Similarly, regular feedback from women entrepreneurs in the UK regarding their debt financing be used to improve processes and address barriers. Similarly advocating policy supporting gender equality in financing and press banks to follow diversity in lending practice.
- The suggested recommendation for improving the performance of the women-led high-growth enterprise is to push for more signatories from all groups (gov.uk, 2022). The group shall be led by the Department of Business and Trade working in partnership with the British Business Bank and British private equity.
- The UK business connects performance for debt financing to female-led enterprises the simplification of the funding process can be undertaken. Thus clear information on eligibility criteria will be provided and improved communication regarding fund availability.
- Development of tailored programs for catering to the needs of different industries for addressing the challenges and opportunities for the company. This will effectively help the female-owned business in debt financing for the female-owned business.
Conclusion
The UK market of debt financing for female-led businesses is highly categorized by various forms of challenges and disparity in contrast to male-owned businesses. The analysis of the present position of debt financing indicates that pre-asked biases, discrimination, inconsistent lending practices, and other structural barriers continue to affect women enterprises' access to required capital. Various initiatives by the government such as the "Task Force on Women-led High Growth Enterprise" and "Investing in Women Code" to redress the issue of debt financing. These intuitively provide a platform to the stakeholders for inclusive growth and proper funding to female-led entrepreneurs. However, with such progress various issues are identified issue as inconsistent lending practices among lenders and biased lending practices that have affected those programs. Finally to resolve the issue building strong networking opportunities, including mentorship programs and providing adequate training to financial institutes to combat gender bias.
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