Bankruptcy and The Other “Glass Ceiling” of Finance for Female Law Professionals

Bankruptcy Town Sign

In 2016, the Consumer Financial Protection Bureau (CFPB) announced that it would be making a pivot in its focus.  Rather than addressing concerns about fraud and bias in lending for post-secondary students or low income mortgage borrowers, the shift would begin to address something that many female business owners (including lawyers who have moved to set up their own firm or private practice) are infinitely aware of; gender bias in small business lending for women.

An archaic argument that attempts to explain the gap between available business lending for female owned enterprises, assumes that there are more male founded start-ups.  Statistically however, we will provide data that confirms there are more small businesses (including independent practices) that are founded by women in the United States, and discuss some recent surveys from major lenders who are addressing the gender gap in SMB lending.

Women in All Professions Are Leading in Successful Small Business Management

Sometime during the early 2000's, women surged ahead of men in terms of starting their own small businesses. For the first time in North American history, there are more successful new female business owners (51% in 2015) for small businesses than male founders. Did you know that 1 in every five business firms in the United States that generate a revenue of $1 million dollars or more, is owned by a woman? In 2015, 4.2% of small businesses owned by women exceeded an annual revenue of $1million dollars.

Another statistic to be proud of, is the number of majority-owned businesses in the United States that are owned by women of color.  In all sectors and professions, these powerful women employ 1.4 million Americans and collectively generate $226 billion dollars in annual revenue (according to 2015 data provided by the National Association of Female Business Owners).

American Express Open commissioned a survey for U.S. based female entrepreneurs and business owners, in every sector. In "The State of Women-Owned Businesses, 2016", female professionals from over fifty major cities across America were surveyed on lending accessibility, and small business supports and obstacles. The findings demonstrate several valuable insights about female professionals in the United States, and entrepreneurial small business trends.

In the report, female-owned businesses account for $1.6 trillion dollars in revenues annually in the United States alone, and SMB's (small-medium businesses) employ more than 9 million Americans. On average, more than 1,000 female-owned businesses have reportedly opened daily, since 2007, outpacing the growth and persistency of male owned small business enterprises.

Statistics from the American Bankruptcy Institute indicate an average of 40,000 business filings per year, from 1980 to 2015.  What impact does lending bias have on the bankruptcy and success of women in the legal profession, regarding access to financial resources to start and build private practices?  Are female professionals more vulnerable to filing chapter 7 bankruptcy because of gender discrimination from investors and financial institutions?  What are these financial institutions doing to foster increased support and economic growth, by opening doors for female legal professionals and other women-owned business ventures?

Separating Myth and Preference from Financial Performance

One insightful article was published in Forbes Magazine, by Renee Smith, a business columnist. The discussion in "Debunking Myths About Women-Led Businesses," the author pulls no punches in labeling the misconceptions that venture capitalists and chartered institutions have about potential and business growth. While lenders speculate that female owned businesses will earn less in the first three years of operation, data demonstrates that they keep pace with their male colleagues, in similar industries. Women Owned Businesses (WOB) received 2% of the investment from outside equity contribution than men, who received 18% of start-up or growth financing through equity investors.

Another myth discussed in the article is that businesses are healthier if they are averse to debt and investor shares, which erode owner equity. One survey conducted by PNC Financial Services Group, Inc., revealed that WOB typically have two sources of financing to grow their business; personal savings and family investment, or revolving credit, leveraging growth needs through credit cards. While interest rates are not ideal, women who experience funding obstacles can accommodate their needs, but at a rate of incurring additional expenses that male colleagues and founders are typically not challenged with.  

Female owned firms and other types of businesses do not have a higher attrition rate (or instances of insolvency) compared to their male colleagues. However, given the lack of practical funding routes, business growth is achieved through more high-risk lending options, which can lead to financial problems, including bankruptcy. Despite the burden of limited lending, WOB's continue to perform, and have a higher long-term success rate in many sectors, compared to male owned or founded business ventures.

How Gender Bias Impacts Female Lawyers

The Wall Street Journal published an insightful article in 2014 about bias, but female law professionals are unlikely to be surprised by the gap in earnings, opportunity and advancement within the legal profession. Despite the commitment of professionals to laws that prohibit the prejudice and exception to equity rules in all other areas of governance, the law industry remains slow to change its patriarchal practices. For female attorneys, this bias lands squarely in the area of earnings, where salary data demonstrates men continue to earn 25% more than their female colleagues, who are equal in terms of skill, position and experience. Read: "Female Lawyers Still Battle Gender Bias" to learn more about the persistency of the earnings and gender gap in North America.

In 2014, only one-third of all lawyers and judges in the United States were female, but the number has increased since 1970, when only 4.8% of law and governance positions were held by women, according to data provided by the U.S. Census. Women make a scant 17% of equity partners at the top 200 ranked American law firms, and even when they do penetrate the coveted corner-office, they still earn less than their colleagues, for no apparent reason than tradition and sexist salary practices.

Since breaking through the glass ceiling at a firm can be more difficult than starting a private practice, many female lawyers look to build their own firm; and then are faced with outdated and misinformed concepts about business management capability from the lending industry. The climb up the ladder for female law professionals, particularly those who aspire to build their own firm, is wrought with set-backs that have nothing to do with the demonstrated legal talent and capability, or business management acuity.

Lenders Are Trying to Change the Trend

The statistics don't lie; there are more female owned businesses now, than ever before and they perform very well financially. Women run and founded businesses are part of the SMB economic engine that is one of the only sectors creating robust returns and job creation. It makes sense for banks and financial institutions to (finally) acknowledge the data and trends, and become a more integral part of the growth trajectory of WOB's.

American Express Open is one division and campaign that has been actively recruiting female business owners, but again, credit card lending is not ideal for investment capital. An interesting trend in the financial sector is changing rapidly, with the introduction of short-term online small business lenders like Kabbage, or OnDeck, who market to all SMB's but specifically target WOB's.  With the introduction of more flexible lending vehicles, female law professionals who are ready to launch a private practice, will have affordable, less restrictive lending options to support long-term growth.


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