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The literature on female entrepreneurs comprises many studies that look into women’s access to finance (Marlow and Patton, 2005), notably long-term debt finance (Harrison and Mason, 2007). The importance of this area of study lies in the relationship between the availability of finance and business growth (Carter and Shaw, 2006). In line with the previous theme, the research is guided by the assumption that women’s businesses underperform compared to men’s because of gender-based differences in terms of financing patterns (Carter et al., 2007). Unlike men, women’s businesses have lower ratios of debt finance and lower levels of capitalisation which are believed to be detrimental for their long-term performance and growth (Carter et al., 2001). Despite the large number of

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studies that have explored this theme, the research focuses mainly on investigating the reasons behind these differences which Carter et al. (2007) group in three strands; structural dissimilarities and gender discrimination (both reasons relate to the supply side), and higher level of debt aversion amongst women (this reason is related to the demand side).

Structural dissimilarities between the businesses of women and men are manifested in women’s ventures being younger, smaller with lower profitability and lower growth (Carter et al., 2007; Mitchelmore and Rowley, 2013). Although the evidence for these dissimilarities is contradictory, as will be discussed further under the theme of “business performance”, the notion of structural dissimilarities remains dominant in the literature. Authors who support this notion refer its presence to the rejection of female entrepreneurs’ loan applications. Coleman (2000) for instance notes that banks reject women’s loan applications because of the small size of their ventures as these institutions prefer lending to large businesses. Riding and Swift (1990) also assert that female entrepreneurs have more difficulty accessing bank loans because their businesses are smaller and younger with low rates of sales growth relative to men.

The assumptions (discussed earlier in the first theme) about women’s poor human capital and the constraints they face in the job market are frequently used to explain banks’ behaviour towards female entrepreneurs (Manning and Swaffield, 2008; Kwong et al., 2012). Marlow and Patton (2005) argue that female entrepreneurs have difficulty accessing bank finance because of their subordination in the workplace which confines them to low paid part time jobs. Consequently, when these women later turn to self-employment, they are low skilled and have limited financial resources. This lack of resources disadvantages their loan applications. Boden and Nucci (2000) also claim that women’s access to finance is limited because their education and work experience are inferior to men. Fay and Williams (1993) blame not only women’s poor human capital but also their weak social capital (which will be debated later under the theme of “Business networking”) for the rejection of their loan applications. Moreover, Fay and Williams (1993) justify the behaviour of

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the loan officers because the latter work in risk-averse institutions and asked female entrepreneurs to improve their human and social capital in order to have access to finance.

Some authors, however, attribute loan rejections not to women’s poor human capital but to gender stereotyping. Marlow and Patton (2005) stress that the skewed representation of femininity, as being inferior to masculinity, hinders women’s access to finance. The same observation is noted by Orser and Foster (1994) who establish that banks’ decisions to lend money are carried out in a subjective manner to the detriment of female entrepreneurs.

A number of studies however challenged the findings regarding banks’ discriminatory behaviour against female entrepreneurs. After undertaking a comprehensive quantitative study in the USA, Buttner and Rosen (1988) dismissed the idea that female entrepreneurs were discriminated against. The authors found no evidence of the influence of sex stereotyping upon funding decisions taken by both loan officers as well as venture capitalists. Their findings were shared by Irwin and Scott (2010) who undertook a telephone survey of 4000 SMEs in the UK and confirmed that women found it actually easier to raise finance then men because they were perceived as “less risky”. Carter and Rosa (1998) and Irwin and Scott (2010) point to the complexity and myriad of factors that loan officers and venture capitalists take into consideration when they review loan applications. Carter and Rosa (1998) noted the influence of the industry upon the banks’ lending decisions as they noticed in their study that the highest rate of loan rejection was allocated to the textile industry which was badly hit in the 1980s. Arenius and Autio (2006) reached the same conclusion as they noted that Finland’s banks favoured loan applications from certain industries, notably high technology and high growth sectors regardless of the gender of the applicant. The authors attributed this discrimination to government’s initiatives which promoted these sectors.

Buttner and Rosen (1989) indicated that the loan process was another factor influencing the decision of loan officers. The authors for instance noted that having an interview as part of the process worked in favour of female

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entrepreneurs’ loan applications. On the other hand, Buttner and Rosen (1988) pointed out that the gender of the loan officer had an influence upon the loan decision. The authors (1988) found that in the USA, female loan officers were more inclined to rate female entrepreneurs higher than male loan officers in terms of certain traits such as leadership, autonomy and endurance. In contrast with Buttner and Rosen (1988), Carter et al. (2007) found that in the UK female loan officers were more stringent than their male counterparts when assessing women’s loan applications.

Similar to the research on the supply side, the research which examines the demand side also holds contradictory findings. This research area is governed by the assumption that the difference between female and male entrepreneurs regarding financing patterns is due to women being more risk-averse. They therefore avoid borrowing which hinders the growth of their ventures (Carter and Rosa, 1998; Cliff, 1998; Watson, 2006; Carter et al., 2007; Roper and Scott, 2009). These results contradict the findings discussed earlier in relation to women’s risk propensity being similar to men.

The research on the demand side has been critiqued for failing to take into consideration the context in which female entrepreneurs operate. Constantinidis et al. (2006) stressed that the demand for finance depends on the firm’s characteristics, the sector in which the firm operates and the owner’s preferences. Irwin and Scott (2010) added that external borrowing was culturally bounded. The authors noted that in the UK most entrepreneurs, regardless of their gender, resorted to the use of their personal savings as opposed to long-term debt finance. Zimmerman and Scott (2006) also found that in Ireland both female and male entrepreneurs preferred informal finance. These findings are consistent with the literature on small business finance where Peterson and Shulman (1987) confirm that culture influences the demand for borrowing. Howorth (2001) also emphasised that UK small business owners preferred other methods of finance over external borrowing as there was a sense of pride associated with not borrowing.

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Furthermore, the literature on finance to small businesses (SMEs) does not support either the assumption that women have different financing patterns from men or that external finance is positively related to business growth. The low level of accessing long-term debt finance is established in the literature as being a common practice amongst entrepreneurs regardless of their sex (Kotey, 1999). On the supply side, a combination of administration costs and high risk of default deters financial institutions from lending to small businesses (Kotey, 1999). While on the demand side, entrepreneurs in general prefer to avoid debt capital as it is perceived to be a threat to their control and independence in addition to the high cost associated with it (Howorth, 2001).

On the other hand, the assumption that there is a strong relationship between business economic growth and external finance has been debated in the literature on finance for SMEs. Planning cash flow is considered to be more vital for business survival and growth than accessing external finance. Moreover, small firms are known to use a wide range of bootstrapping methods of finance which offset the absence of external finance (Howorth, 2001). Despite the importance and the relevance of both cash flow and bootstrapping to the entrepreneurial experience, especially in the current economic climate, both topics are not explored in female entrepreneurship studies with the exception of Brush et al.’s (2006) study. In their study, the authors (2006) note that women use a wide range of bootstrapping activities to finance their businesses and that these activities vary according to which development stage the business is in.

In summary, despite the volume of research done on female entrepreneurs and finance there is no evidence that there are gender based differences in finance patterns which are detrimental to women’s performance (Carter and Rosa, 1998; Harrison and Mason, 2007; Irwin and Scott, 2010).