Recent reports from the National Women’s Business Council (NWBC) indicate that America’s entrepreneurial women are working hard and smart. Women-owned businesses averaged 424 startups every day between 1997 and 2002, and today there are 10.6 million private businesses owned at least 50 percent by women. The life spans of privately held, women-owned employer firms have reached virtual parity with their male-owned counterparts and the women-owned firms appear to be more resilient employers.
 
That’s the good news.
 
Women, however, are increasingly encountering the one business element that can stop them in their tracks—risk. While business risk generally affects both men and women, one risk segment appears to weigh more heavily against women. According to the NWBC, businesswomen report that cash flow and capital (often two sides of the same coin) rank high among their top concerns, and that women rank behind men in amounts of accessible bank credit and staggeringly far behind in access to venture capital. Women are falling victim to the “Fifth C” of financial transaction analysis: Character. 
 
The Five C’s are the roadmap analysts use to score risk in financial transactions. Capacity, Capital, Collateral and Conditions are hard scores driven by mathematics and rules of observation. But the fifth C – Character – is soft. It’s the analyst’s subjective impression of you, professionally and personally, and how likely you are to repay a loan or deliver value on a venture capitalist’s (VC) investment. 
 
Because it’s soft, your Character score may say as much about the analyst’s false preconceptions as it does about you. The result, ladies, is that you still have to be a bit better than a man to get the same loan. And for most women, that’s not that hard.
 
I have found that nearly all financial executives are sincere when they say they are blind to gender. They’ve made great progress over the last two decades, but progress stops unless we admit bias remains a part of our capital markets. Once overt and sharp edged, most gender bias has now reduced and softened into negative preconceptions that cloud first impressions. Even the best-intentioned men (this author included) are trapped within their preconceptions that have been taught and reinforced from birth. 
 
Overcoming the negative stereotypes is a long-term battle, fought by providing incentives and increasing exposure of successful women leaders. But businesswomen need help now, and there are two significant steps they can take immediately that will cut their risk of running a cash-starved company: perfecting their approach and cutting risk. Both steps focus on character.
 
Perfecting the Approach
 
● Assume you will have to be a little bit better than your male counterpart. Every mistake you make might be more noticed or take on greater proportions than those of a man. Maximize your personal professionalism.  
 
● Tell an excellent story. Scrub your story until you can tell it quickly and compellingly.  What is the big picture of your business plan? What will happen after you receive the loan? How do you know it will work? Why are you passionate about doing this?  
 
● Invest in financial expertise and a good attorney or consultant before you seek a loan.  Have them challenge and perfect your business case and presentation.  Assembling a strong team visibly demonstrates that you know it takes a team to run a successful business and are capable of selecting and leading that team.  Lenders will notice.  
 
● Use your team of experts to complete the lender’s application. Most business applicants ask the bank for help in completing the forms. Assisting creates unwelcome personal liability for the loan officer in case of error. Worse, the loan officer gets paid to generate approved loans, so her participation in creating the application must be divulged to the bank’s risk analyst who scores your application. Because of the officer’s incentive compensation, her participation compromises the integrity of the application in the analyst’s view, resulting in extra scrutiny. For bigger loans, asking the bank for help with the application will likely kill your opportunity.
 
● Relationships matter! Aggressively develop your network of relationships. Play them well and fully. Call on a familiar person within the bank or VC firm. If you don’t have a direct relationship, network to create that connection – have them introduce you.
 
Cutting Risk
 
Second, women CEOs can embrace a simple risk management process that makes their business more attractive to lenders. Without a proactive plan to prevent trouble, companies are stuck with the unfortunate reality of fighting fires, instead of focusing on their core moneymaking activities. There is no profit or growth in firefighting. Lenders are quick to spot and avoid risky operators; conversely, they are attracted to stable companies.
 
Risk management lets your business grow a bigger, more predictable bottom line. Common sense tells you that companies make more money when things don’t blow up. But the economic rewards of risk management might far surpass expectations. The University of Southern California spent twenty years studying crises preparedness within the Fortune 500, finding that companies that proactively prepared for trouble enjoyed up to 100 percent higher return on assets (ROA) and suffered nearly 60 percent fewer crises than companies that ignored or poorly managed danger. These stunning numbers are impossible to ignore if your company is suffering from tight cash flow – a common issue among women-owned businesses.
 
Risk management isn’t just for the Fortune 500 anymore, and businesswomen can emulate the school’s findings. New business models make risk management practical for almost any employer. Risk management doesn’t need to be expensive, time consuming or complex. It starts with the CEO asking, “What worries keep me up at night?” Then she finds a risk management model designed for small businesses, such as the PreActTM model I detail in Bulletproof Your Business. A good model recognizes that the CEO has no time to become her company’s risk manager and shows her how to select a trusted employee or partner, typically an administrative VP or controller, and delegate risk management responsibilities.
 
Every company has its own unique risks, but most risks are universal because they are linked to people – clients, suppliers, employees and financial stakeholders (i.e., banks or VCs). These people are highly responsive to risk management strategy and tactics. Most risks can be managed with paper, usually in the form of contracts and simple, documented work processes. To begin this work, the risk manager obtains model contracts and processes and edits them to fit the company’s unique needs. It should cost little to have an attorney review the edited contracts and add the finishing touches. Once a year the risk manager verifies that the contracts and processes are working as expected, adjusting as needed to keep them effective. The consistent use of standardized contracts and work processes is the very heart of a low cost, easy-to-implement and effective risk management process for small businesses.
 
Reaping the Rewards
 
Beyond bankers and VCs, clients, insurance companies and smart employees will reward your risk management efforts, too. Making your business less risky directly lowers their risk in working with you. A proactive risk management program certainly gives women entrepreneurs a competitive advantage over their “reactive” counterparts.
 
As your business and stability grows, you’ll have more peace of mind, be able to better focus on your core objectives and find more time to spend with family – likely the reasons you worry about capital in the first place. Your true Character will show, as you become an example of another successful woman entrepreneur. 
 
Brad Forsythe holds a certificate from the Harvard Business School in small business strategic finance and recently published Bulletproof Your Business – Cutting Risk for Small Business Owners and Managers. In 2003 he founded Best Practice Advisors, LLC., and teaches the professional practice of risk management for companies with less than 500 employees. He can be contacted via the website www.bradforsythe.com.