The Financing of Small Business A detailed empirical study of how small business owners finance their enterprises, this volume compares the experiences of women with those of men. The author redresses an over-reliance on subjective and anecdotal evidence of discrimination in this area with a controlled study of forty matched pairs of male/female owners, and their strategies for raising finances. The book finds considerable similarities between female and male entrepreneurs in the type and amount of finance used in the business. It also uncovers some significant differences in the banking relationships and networking behaviour of the two groups. The implications of this for academics, policy makers and the financial community are also considered. Lauren Read studied for her Ph.D. at the University of Southampton. She is currently a senior policy advisor at the Confederation of British Industry, responsible for small firms policy in the SME Unit. © 1998 Lauren Read Routledge Studies in Small Business Edited by David Storey 1. Small Firm Formation and Regional Economic Development Edited by Michael W.Danson 2. Corporate Venture Capital: Bridging the Equity Gap in the Small Business Sector Kevin McNally 3. The Quality Business: Quality Issues & Smaller Firms Julian North, Robert A.Blackburn and James Curran 4. Enterprise and Culture Colin Gray 5. The Financing of Small Business: A Comparative Study of Male and Female Business Owners Lauren Read © 1998 Lauren Read The Financing of Small Business A comparative study of male and female business owners Lauren Read London and New York © 1998 Lauren Read First published 1998 by Routledge 11 New Fetter Lane, London EC4P 4EE This edition published in the Taylor & Francis e-Library, 2002. Simultaneously published in the USA and Canada by Routledge 29 West 35th Street, New York, NY 10001 © 1998 Lauren Read All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloguing in Publication Data Read, Lauren, 1971– The financing of small busines: a comparative study of male and female busines owners/Lauren Read. p. cm. Includes bibliographical references and index. 1. Small business—Finance. I. Title. HG4027.7.R397 1998 658.15’92–dc21 97–40388 CIP ISBN 0-415-16956-9 (Print Edition) ISBN 0-203-02494-X Master e-book ISBN ISBN 0-203-20637-1 (Glassbook Format) © 1998 Lauren Read This book is dedicated to Mum, Dad, Lindsay and Kevin. Thank you for all your love and encouragement. © 1998 Lauren Read Contents List of figures List of tables Preface Acknowledgements 1 The growth and characteristics of female entrepreneurship 1.1 Increasing numbers of women-owned businesses 1.2 Explaining the growth of female entrepreneurship 1.3 The problems faced by female entrepreneurs 1.4 Summary, research rationale and overview 2 The financing of women-owned businesses: an empirical overview and theoretical framework 2.1 Problems faced by women in the financing of their businesses 2.2 The financing of women-owned businesses: a theoretical framework 2.3 Explaining the problems faced in the financing of women-owned businesses: a contextual approach 2.4 Conclusion and research agenda 3 Research into the financing of women-owned businesses: methodological considerations 3.1 Introduction 3.2 The methodological shortcomings of existing research 3.3 The financing of women-owned businesses in the UK: research method 3.4 Data collection: practical and conceptual difficulties 3.5 Sample overview 3.6 Summary and conclusion © 1998 Lauren Read 4 Raising finance: the use of and attitudes towards sources of small business finance 4.1 Introduction 4.2 The characteristics of small business finance 4.3 Explaining the reliance on internal sources of finance 4.4 Raising bank finance: an in-depth analysis 4.5 Conclusion 5 The characteristics of the banking relationship 5.1 Introduction 5.2 The small business-banking relationship: an overview 5.3 The use of banks 5.4 The banking relationship 5.5 Conclusion 6 The role of networking in the financing of male and female-owned businesses 6.1 Introduction 6.2 Networking behaviour and the size of small business networks 6.3 Network profiles 6.4 Conclusion 7 Conclusions, implications and an agenda for future research 7.1 Introduction 7.2 Research implications 7.3 Limitations and an agenda for future research Notes Bibliography © 1998 Lauren Read Figures 2.1 The entrepreneur’s search for and acquisition of capital (proposed relationships between variables) 2.2 Diagrammatic representation of the Pecking Order Hypothesis applied to sources of small firm finance 3.1 Model of factors influencing the credit terms extended to small business owners 3.2 A continuum of survey methodologies 4.1 Frequency distribution of start-up costs 4.2 Total number of sources used at start-up (per respondent) 4.3 Total number of sources used post-start-up (per respondent) 4.4 Size of overdraft limit 4.5 Size of bank loans 5.1 The development of banking services for small businesses 5.2 Distribution of firms by bank 5.3 Importance of key factors in the banking relationship: breakdown by sex of respondent 5.4 Performance of banks on key factors in the banking relationship: breakdown by sex of respondent © 1998 Lauren Read Tables 1.1 Self-employment (Great Britain, winter 1994/5) 2.1 Theory bases used in research on female business owners 2.2 The traditional view of the financial life-cycle of the firm 3.1 Business characteristics 3.2 Business characteristics by sex of respondent 3.3 Business owner characteristics by sex of respondent 4.1 Amount of finance used to start the business 4.2 Types of problems associated with undercapitalisation 4.3 Sources of finance used by respondents at start-up 4.4 Sources of finance used by respondents post-start-up 4.5 Total use of bank finance and type at start-up and post- start-up 4.6 Reasons given by finance providers for refusing to finance businesses 4.7 Reasons for non-use of bank finance 4.8 Security/guarantees required on bank finance (overdrafts and loans) 5.1 Reasons given by respondents for choosing their bank 5.2 Type of assistance provided by banks 5.3 Reasons for non-use of bank advice 5.4 Frequency of contact with account manager 5.5 Reasons for decrease in frequency of contact with bank 5.6 Importance of key factors in the banking relationship 5.7 Male-female comparison of the four most important banking relationship factors 5.8 Performance of banks on key factors in the banking relationship 5.9 Performance scores of banks on key factors in the banking relationship 5.10 Satisfaction with the banking relationship © 1998 Lauren Read 5.11 The six most commonly cited bank-related problems 5.12 The relationship between sexist treatment by the banks and satisfaction scores 5.13 Ways in which respondents deal with banking problems 6.1 Sources of assistance used by respondents 6.2 Membership of external associations or local business groups © 1998 Lauren Read