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If you are a woman running a small business in Europe, good luck getting a loan

The travails of businesses seeking loans in the euro zone are well known. A new report shows that small businesses are suffering the worst. Corporate loans of less than €1 million ($1.4 million) have plunged from their pre-crisis peak by more than 80% in Ireland and 60% in Spain, according to research by Bain & Co. and the Institute of International Finance.

This is particularly bad news for the euro zone’s troubled “periphery”, where small businesses comprise a much larger share of the economy than elsewhere on the continent. Companies with fewer than 50 employees provide more than 50% of all jobs in Italy, Spain and Portugal, the highest percentages in Western Europe.

And amidst these already difficult conditions, things are even worse for female-owned firms. The Bank of Italy recently published a batch of papers on the subject, with eye-opening findings.

This bank branch has a glass ceiling

In Italy at least, researchers found no difference in the profitability or productivity of similar firms based solely on the owner’s gender. Yet there is evidence that following the financial crisis, female-owned firms—which tend to be small—were refused bank loans more often than male-owned counterparts in Germany, Italy and Spain. This is despite the fact that banks were quicker to write off the bad loans of male-owned firms—which is another way of saying that lenders were more confident that female-owned firms would honor their debts, even in times of stress.

Giorgio Calcagnini, a professor at the University of Urbino in Italy, is currently updating his previous research on female-owned firms’ access to credit. In Italy he finds that lenders require many more guarantees from women. Specifically, female entrepreneurs are required to pledge collateral from their business as well as personal guarantees, putting a broader range of their assets at risk to get identical loans to men.

These extra hurdles discourage women from applying for credit in the first place, one of the common reasons cited for why the flow of credit appears less fluid for female-owned firms. The dataset Calcagnini has been studying ends in 2008; things are “probably worse since then,” he says. “It is really bad in Italy right now.”

Refused in Rome, missing out in Milan

“Young female entrepreneurs have had the worst possible time,” adds Stefano Manzocchi, a professor at LUISS University in Rome. The addition of more female entrepreneurs over the past decade in Italy, Spain and elsewhere in southern Europe has not been met by a change in attitudes by bank managers, he says. The longstanding relationships that govern small-business loans at banks in these countries mean that newer companies—which are disproportionately run by women—find it hard to convince lenders of their creditworthiness, particularly since the financial crisis has made lenders more wary.

It is hard to overlook the fact that much of the recent research on gender-based access to finance originates in Italy. On existing evidence, the face of Europe’s credit crunch is a young, entrepreneurial Italian woman.

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