One of the advantages we have at AFIA DEI Index is being part of The Forum with its network of relationships with women entrepreneurs across the country. In October and November 2022, we leveraged this community to run three focus groups with BIPOC women entrepreneurs to learn about their experiences in trying to access business funding and their advice to funders for improvement.

This is the first of two blogs about what we learned.

Who participated?

Two-thirds of the participants were located in Eastern Canada, with the remainder distributed between Western and Atlantic Canada. 78% of the participants identified as BIPOC (36% as Black, 7% as Indigenous, 21% as East Asian, 15% as South or Southeast Asian).

What did we learn about their experiences?

Participants were very open and candid about their experiences in trying to access funding for their business ventures, as well as about why they often did not seek funding in the first place.

Here’s what they told us:

• Impersonal Processes Result in Exclusion: Many testimonies illuminated the fact that the average funding approval process is quite impersonal and rigid, not allowing for the discretion necessary to properly analyze a business’ capability to successfully repay a loan. Indeed, in many cases, loan applications were entirely online and women were excluded before they even had the opportunity to speak with a person. 

• Falling between The Cracks: The diverse women indicated that funders often demonstrate a lack of understanding about their type of business, especially if it falls into a hybrid category, has a social purpose, or involves ecommerce. For example, one entrepreneur highlighted that having a social purpose in  their business hindered their application process as investors wanted a return rate that she could not achieve while paying her employees a living wage. Ultimately, she was able to find investors whose values aligned with hers, but indicated that this was a difficult process. Another indicated that she had created an innovative business that combined a physical product with an accompanying app. As a result, both technology-oriented funders and traditional funders thought her business didn’t fit their criteria as it was not just tech or just product.

• Lack of Relevant Information: One area that causes a lot of confusion is where to go to get funding and what types of funding are available. Participants* shared that this is not knowledge that is available in their communities, and that the funders provide complicated information that is hard to understand. They often feel uncomfortable asking about funding options as they do not know the lingo or even what questions to ask.  Another kind of information lack is around the criteria for loan decisions. There is often little explanation why applications are denied, which makes it difficult to determine what additional steps the applicants need to take to get funding. 

• One Type of Funding Blocks Access to Another: Participants stressed that receiving grants can create barriers to accessing loans, as traditional lenders would not count this as revenue. A major challenge is the impact of using personal credit to start-up their enterprise, which can lower their credit score and make accessing business financing difficult down the road. Even when approved for business loans, many women indicated that they are wary of taking on loans with high interest rates. Furthermore, having to guarantee loans with personal assets made many participants feel uncomfortable; for others it has deterred them completely from applying for funding. 

• Onerous & Complicated Requirements: Participants indicated a lack of transparency with respect to funding requirements at various financial institutions. Several Black women mentioned that even when funding is targeted to them specifically, such as Black Entrepreneurship Funds, the requirements and terms are not transparent. An Indigenous woman entrepreneur mentioned that grant funders say that they are there to support them, but then have guidelines that are difficult for a solopreneur to meet, such as requiring the business to have at least one additional employee. This makes scaling the business challenging, as it creates a cycle of ‘needing funding to get funding’.

• Opportunity Costs: The opportunity cost of the time spent applying for the many different grants and loans can be quite high, as the application process varies across financial institutions and other funders. Solopreneurs and small business owners are wary of spending time on applications without any guidance or intel about their chances of being funded. 

• Targeted Funding Unallocated: Several participants expressed concern that BIPOC targeted programs are not actually dispersing funds. They see these as public relations campaigns for financial institutions and/or the government. For example, during an accelerator program meant to move Black entrepreneurs into accessing targeted loans, a participant asked organizers if anyone had received the funding yet from the program, and received a noncommittal response. Other Black and Indigenous women said they didn’t know anyone in their network who had received funds through any targeted program, including themselves, despite applying and thinking they met the eligibility requirements. 

• Biases: The women participating in the focus groups expressed that there are some inherent biases in approval processes that create gender and cultural-based inequities in funding. One woman found that she was continuously asked about her personal relationship status when applying for business loans; while another found that she was able to qualify for a loan only after adding their husband to the application (which was suggested by the funder). Women expressed concern about being overlooked if investors found out that they were pregnant during a pitch round, despite the fact that many women continue to operate successful ventures while parenting babies and young children. Another woman was advised to add products from other cultures to their line-up, creating frustration that the cultural significance of their products was not seen or respected.

• Discrimination: One particularly troubling instance of racial profiling in banks was shared by an Indigenous entrepreneur. They mentioned they have an Indigenous Status Card as their main ID, and it has made their experience at banks very difficult, particularly when they enter the bank wearing their traditional clothing. She said that employees will often call a manager to go through their IDs as well as treat them rudely. Several BIPOC participants also indicated that they know they are considered a higher risk by lending institutions, because they didn’t establish strong credit records when they were young due to historical lack of knowledge and/or relationships with financial institutions in their community.

In the words of one Black participant:

“Until they start giving money out, they’re not going to allow us to start reversing that trend [of weak credit records] because it’s not even giving people the opportunity to try. It also puts us at higher interest rates.”

AFIA DEI Index was created to address these systemic barriers to financing for women entrepreneurs in all their diversity. By working with banks and other funders who are committed to change, we can shift culture, policies and practices to create equitable and positive experiences for women entrepreneurs and greater access to financial capital to grow their business ventures. 

*It is relevant to note that the conversations were open to discussing all kinds of funding: grants, developmental loans, business loans, lines of credit, and venture capital.