The State of SME Funding for Women in the UK 2024 

Financing SMEs and Female Entrepreneurs in 2024

Despite the number of female entrepreneurs and business owners growing in the UK, small business finance is still falling short in this category.

Although female-led businesses contribute an astonishing £105bn to the UK economy, raising external capital has been one of the key issues that could be halting a huge amount of potential productivity, innovation and competitiveness. Without external capital, growing and scaling a new business can be extremely challenging, especially for women.

In this article, we will discuss the historical problems that have affected business funding for women in the UK and why this is such a big issue for the wider UK economy and business landscape.

Women in Business

In 2023, 4,954,534 companies were active in the UK, but only 20% were female-led (1 in 5 active companies). An important fact to note is that, according to The Gender Index Report 2024, the number of female-led companies varies slightly between generations:

• The Silent Generation (born between 1928 and 1945) have the highest proportion of female-led companies at 21.7%
• Millennials (early 1980s to mid-1990s) are just below this figure at 21.6%
• Gen Z (late 1990s to early 2000s) are decreasing year by year at 21.3% (compared to 21.3% in 2022)
• Perhaps unsurprisingly, the Boomer generation (1946 to 1964) has the lowest proportion of female-led companies at 18.6%

The issue is more apparent when looking at businesses that are classed as ‘high-growth’. 75% of high-growth businesses are founded by men, leaving just 18-25% of high-growth businesses with one or more women founders.

The numbers speak for themselves, but to put this into perspective: if women had access to the resources that would allow them to scale businesses at the same rate as men, over £250bn could have been added to the UK economy.

The issue is not that female-founded companies are hard to come by or pose a risk for investors. Female business owners have proved their resilience in the face of the economic and global challenges of recent years by continuing to establish new companies. In 2023, out of the record 900,000 new companies that were launched, 164,000 were female-founded, a 4% increase on 2022’s figures.

The persistence of female entrepreneurs would suggest the state of funding is looking positive or is at least going in the right direction. However, the truth of the matter is that SME funding for women in the UK still has a long way to go.

Current Issues in SME Funding for Women in Business

Funding for SMEs founded by women remains a challenge. Despite progress in other areas, women-led businesses often struggle to secure the same level of investment as male-founded businesses.

Of the companies that have access to external investment, only a fifth were female-led. In fact, for every £1 of UK investment, only 2p is going to fully female-founded businesses, a huge difference to the 85p which is heading towards male-founded businesses.

There is also a big difference in the type of investment received by male- and female-founded companies. A higher proportion of investment is going to male-founded companies across all investment forms:

• Angel (53.7% versus 21.6%)
• Love (70.9% versus 13.8%)
• Corporate Venture Capital (73.2% versus 9.4%)
• Venture Capital (76.7% versus 7.6%)
• Private Equity (84.4% versus 5.6%)

Not only are women less likely to apply for funding in the first place (only 5% of pitch decks come from all-female teams), but perhaps one of the biggest reasons why female-founded companies are struggling to gain access to funding lies in diversity amongst angel investors. Despite female-founded companies relying on angel investments as their primary source of capital, male Angel investors outnumber females by more than 200%. With male investors less likely to invest capital in fully female-led businesses, it can be a huge challenge for entrepreneurs to even be considered for funding.

Thankfully, the gender gap amongst UK angels is steadily improving, with over £2 billion worth of investments being made by female angels in the past decade, leading to the creation of over 10,000 UK jobs. The main benefit of this increase will be seen in the accessibility of funds for female founders. A new report from British Business Bank highlighted that angel groups made up of more than 15% of women investors made 57% of their total investments into teams with women founders (21% into all-female teams).

Government Support in Female-Founded SMEs

It’s not all bad news for female-founded SMEs in the UK; there have been some recent developments that should improve the business landscape.

Chancellor of the Exchequer, Rachel Reeves (who also happens to be Britain’s first female Chancellor), recently confirmed her commitment to the Invest in Women Taskforce, a successor to the Rose Review that aims to establish a private capital funding pool of over £250 million for female-founded businesses.

This Government backing is especially important as new data from the Investing in Women Code Annual Report 2024 found that venture capital fund managers who signed onto the Investing in Women Code are more likely to invest in female-founded businesses. Previous Prime Minister, Rishi Sunak, also expressed his wishes to make the UK ‘the best place for women starting a business’. This sentiment has been echoed by the new government, which has already set out a plan to diversify the financial services industry.

Creating a Better Future for SME Funding for Women in the UK

When we think about creating a better future of SME funding for women in the UK, it’s important to look back at the historical and social factors that have created this environment.

Gender stereotypes and a lack of representation in business and entrepreneurship have discouraged women from pursuing entrepreneurship. Most importantly, the struggle to balance professional and personal responsibilities can create a challenge, with 46% of female founders citing that family care responsibilities were a significant barrier to their success.

Women, who are already more naturally risk-averse than men, often face self-doubt and a lack of confidence as a result of gender stereotypes and societal factors. Perception of rejection and fear of failure disproportionately prevented female founders from seeking funding, which may be why 48% of female founders would say that it’s harder for them to access external finances than men.

Education and mentorship play a vital role in building confidence and knowledge. Currently, only 5% of women entrepreneurs have a mentor compared with 12% of men. By providing female entrepreneurs access to training, guidance, and supportive networks, we can improve the success rates of women-led businesses. This includes guidance on how to apply for funding, alternative funding options that are more easily accessible, like revenue-based funding, and how to build connections with other entrepreneurs.

Addressing the bias within the financial industry is another issue to tackle. One of the key promises of the Rose Review 2023 was to grow the pool of women angels from 14% to 30% by 2030. This is particularly important given a recent Harvard study that highlighted the difference in questions asked by venture capitalists to male and female entrepreneurs. For men, discussions centred around ‘potential for gains’, whereas for women it was ‘potential for losses’. While this bias exists among both male and female venture capitalists, diversifying the financial industry and providing education on these biases will be a welcome improvement.

The financial industry has a lot of work to do, which is why we’re so passionate about our #SheLeads campaign at 365 finance. We want to lead the way and empower women to start and scale businesses. We recognise the funding issue and how it affects female entrepreneurs, but we hope that with collaboration across the private and public sectors, we may be reporting on much better statistics over the next few years.

At 365 finance, we can provide long- and short-term financial solutions, with revenue-based funding available from £10,000 to £400,000 in capital. Apply for Rev&U today without affecting your credit score, or speak to our team to find out how we can help your business. To find out more, head to our website.