Why Women Won't Win with the New Contracting Rules

Last Updated Oct 13, 2010 9:15 AM EDT

Tickertape is still being flung by women's business advocates claiming victory in the wake of the SBA's newly announced procurement rules intended to ensure that more federal contractors go to women-owned businesses.

I'm all for it- the rules and the high-fives. But as additional research is released about the current state of women-owned businesses, I doubt that this program will work as intended. The simple, sad truth is that very few women-owned businesses are big enough or sophisticated enough to take advantage of the garage door just opened by the SBA.

Women-owned firms are small, bringing in only 11% of all U.S. firm revenue in 2007. In fact, only 1.8% of women-owned firms gross at least $1 million a year. Meanwhile, few women business owners have landed bank loans to start or expand their companies. Only 5.8% of women-owned firms (compared to 12.5% of male-owned firms) use bank loans to start; those proportions roughly hold for accessing bank loans to expand.

Whether they won't access traditional bank lending (perhaps limiting growth to what they can self-fund) or they don't qualify for traditional bank terms (because, for example, their cash flow is erratic or they have over-relied on personal credit cards) is irrelevant. The fact is, if you haven't navigated the process of landing a bank loan, you don't have the experience you need to make a serious run at a Federal contract. The punishing Federal contracting system, with its infuriating rules, thickets of paperwork and impenetrable delays, will look like a day at the spa compared to getting a measly bank loan.

Even companies that land apparently juicy contracts come to regret them. Sunday the Chicago Tribune reported the agonizing unraveling of a small-town clothing manufacturer whose $1 million order for military dress coats appeared to be a Godsend. Valerie Lilley already had a costume manufacturing company with annual revenues of $850,000 when she pieced together state, local and federal economic incentives to revive a mothballed textile plant. It didn't take her long to land that $1 million military contract. But in the 18 months between getting the contract and getting paid, her company came apart at the seams. She is now in foreclosure on her house, pledged as collateral for a small business loan. She owes $377,000 to various banks and municipal economic development entities; $115,000 of her savings and retirement account is wiped out.

If a government contract seemed like a safe bet for Lilley, there is not much hope for smaller, less experienced women-owned businesses.

If you think you can do better, ask yourself these two questions: Can you afford to wait two years to get a government contract? And can you afford to spend $86,000 to get it?

No? Then the SBA's shiny new rules aren't going to help you much at all.

Image courtesy of Morguefile user Peniwise.