Study finds lack of finance for ethnic minority owned SMEs hinders overall economic growth

The “gulf of financial support” for businesses owned by ethnic minority entrepreneurs in the UK has widened to such an extent that it is now hindering the growth of the national economy, according to research conducted by the Social Market Foundation.

The study noted that, in the UK, 9.9 per cent of those from ethic minority backgrounds start a business compared to a lower national average of 6.4 per cent.

Nevertheless, the Social Market Foundation reports that ethnic minorities are proportionately underrepresented in the UK business landscape, considering they account for 14 per cent of the UK population yet only 5.1 per cent of UK SME ownership, seemingly caused by the barriers in accessing support.

To better understand the adversity ethnic minorities face in scaling their businesses QU, a business coaching service for the SME arena, has commissioned “landmark” national research investigating the critical lack of diversity in support and access to growth capital. 

Marla Ubhi, co-founder of QU, commented: “Britain’s inclusive business practices have driven us towards progress over the past couple of decades. However, further action is imperative to improve the financial knowledge of would-be ethnic minority entrepreneurs, to act upon their ideas and proposals for start-up and growth.” 

The study found that 57 per cent and 48 per cent of Black and Asian Brits respectively are looking to improve their lifestyles through the risk of starting a business.

The research further unveiled that 56 per cent and 49 per cent of Black and Asian Brits were looking to secure finance for their business growth, yet the Guardian reports that businesses owned by white entrepreneurs were twice as likely to be granted loans when compared to those owned by black entrepreneurs.

A study by the British Business Bank found this lack of access to finance has led 49 per cent of ethnic minority entrepreneurs to stop working on their business idea, stopping a wave of entrepreneurs from entering the market. 

According to QU, several factors that define loan outcomes are based on missing financial knowledge rather than based on ethnicity.

QU focuses on informing and guiding ethnic minority businesses to the right place to source capital, with simple actions that will increase the probability of securing finance, such as improving credit-scoring and devising financial models.