New York City announced on Wednesday that it is teaming up with Goldman Sachs and a few other companies to make it easier for female entrepreneurs to tap affordable lines of credit to grow their businesses.
In a release, the city announced a new program called WE Credit that will help 250 women entrepreneurs access lines of credit, which will average $50,000 at below-market interest rates. The city hopes WE Credit will help close the startup gender gap, and become a model for others to follow.
The program is part of a public-private partnership with Goldman Sachs' 10,000 Small Businesses program, which will provide $5 million to finance lines of credit. Separately, Squarespace, an all-in-one website building platform, and and the New York City Economic Development Corporation will invest $1 million for a loan loss reserve to cover potential defaults, while credit solutions provider Fundation will offer the platform for the women to access and manage the lines of credit.
The annual percentage rates will be up to 12%, well below current market rates.
"It is widely known that in the decade since the financial crisis, the economic recovery has not benefitted all communities and all types of business owners and employees equally,” Margaret Anadu, managing director and head of Goldman’s Urban Investment Group, told Yahoo Finance in an interview.
“Women, even though they are starting small businesses at a significant rate, fundamentally don't get the same amount of capital that their male counterparts do," she added.
According to research by the city, 70% of New York-based women entrepreneurs cited access to capital as their primary challenge. Additionally, half of the women entrepreneurs surveyed by NYC said they only needed less than $10,000 when starting their company.
And because they aren't getting access to funding, many of those women end up funding most of their business on their own — often relying on personal credit cards and payday lenders that come with prohibitively high interest rates.
In an interview with Yahoo Finance, former Deputy Mayor Alicia Glen said the new initiative was necessary, in light of the fact that “the private sector hasn't been able to move the needle.
Glen, herself a former Goldman Sachs executive, added that “when something is not right about a way the market is functioning, it is absolutely appropriate for the government to intervene.”
WE Credit bills itself as a first of its kind product that provides working capital at below-market rates, in order to support women who wouldn't have access to the money otherwise.
"The city can use its platform as a bully pulpit to raise awareness of the issues, but equally important is to put a thumb on the scale and put skin in the game," Glen said, adding that WE Credit may help create a playbook for others to follow.
The access to credit is another data point that's part of a more significant challenge when it comes to female entrepreneurship.
Studies suggest that less than 2% of startup capital goes to female founders and only 1 percent to minorities — a figure Glen called “appalling.” She criticized figures that show women-led businesses are only getting such a slim cut of all venture capital funding.
“That's crazy,” she said. “We know many women have as good ideas as their male counterparts.”
Glen also chided a system that appears to make it harder for a female small business owner to get a small business loan than a male-run business.
"There are endless examples of places where if you were to look at it completely gender-blind and look at the business or the pitches or metrics or revenue, the women should be doing better than they are doing when raising capital,” she told Yahoo Finance.
“That means something is wrong with the system. Simple as that. We should just call it out,” Glen added.
One of the goals of the WE Credit is to create a network effect of elevating other female entrepreneurs.
"When women entrepreneurs get capital and tailored business education that helps them better execute on their business plans, they tend to pay it forward. They tend to mentor other women and do business with other women," Goldman's Anadu said.
It's especially important, since women are still underrepresented in corporate America’s top echelons.
"Today in corporate America and in the financial services industry, women do not have a proportionate share of leadership and decision-making roles. When women do not have a meaningful say in which people, businesses, and fund managers get capital, the result is not enough capital ends up in the hands of women," Anadu said.
Julia La Roche is a finance reporter at Yahoo Finance. Follow her on Twitter.