The ￡75 Billion Opportunity: Finance and Ethnic Minority Business Growth

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This blog focuses on focuses on finance, a key issue in the Centre for Research in Ethnic Minority Entrepreneurship’s (CREME) report? ‘Time to Change: A Blueprint for Advancing the UK’s Ethnic Minority Businesses’. The report is the most comprehensive of its kind. It sets out ten evidence-based recommendations for advancing the growth potential of ethnic minority businesses (EMBs), including increasing their GVA contribution from the current ￡25 billion a year to ￡100 billion. The CREME team will be working with partners to implement the report in the next three years.

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Cash is essential for any business that wants to scale and grow. But for many aspiring entrepreneurs from ethnic minority backgrounds, getting the finance they need to realise their dreams is a persistent challenge.

This is the main finding and of the first of ten recommendations in the CREME’s ‘Time to Change’ report, which explores how to unlock the potential of ethnic minority businesses (EMBs) in the UK. Our report shows EMB owners are more likely to face barriers to access finance than mainstream SMEs. This means we need to address both the real and the perceived obstacles that prevent EMBs from getting the funding they deserve.

The persistence of this challenge for EMBs fills me with a sense of déjà vu. I led the first large-scale study for the then British Banking Association (now UK Finance) over 20 years ago. We came to much the same conclusion. Perceptions of unequal treatment are proving stubbornly persistent.

How banks can help EMBs

One of the key actors in this process is the banking sector. The report does not suggest that banks are deliberately discriminating against EMBs, but it does highlight the lack of trust and confidence between EMBs and banks. Many EMBs, especially Black entrepreneurs, feel that bank finance is not an option for them.

We have all heard the stories of frustration and disappointment - an ethnic minority entrepreneur applies for funding only to be turned down for are reasons that aren’t always clear. They lose faith in the system and give up on their ambitions. We need to tackle the entrenched problem of discouragement, which is holding back so many EMBs, and operating to the detriment of the banking sector.

Our report proposes some practical steps banks can take to address this situation, such as improving their communication with EMBs, appointing specialist EMB relationship managers, supporting research and being transparent with data. The aim is to rebuild trust and close the gap between perception and reality. As we say in the report, it does not matter if the problem is real or not, “the perception of a problem in accessing external financial products remains deeply embedded.” Banks need to make public commitments to engage with EMB communities more proactively.

How other sources of finance can support EMB growth

But banks are not the only ones who can make a difference. There are also other sources of finance that can support EMB growth, such as:

• Government-backed loans
• Alternative financing like crowdfunding
• Corporate partnerships

Finance is a key driver of growth for all small firms, not just EMBs. By unlocking its potential for ambitious ethnic minority entrepreneurs, we can boost both social inclusion and economic prosperity.

How you can join our coalition

At CREME, we’ve assembled an implementation team to work on improving finance and take forward nine other recommendation on key issues for EMBs. Key actors like UK Finance and the Federation of Small Businesses are working us, and Metro Mayors Andy Street (West Midlands) and Tracy Brabin (West Yorkshire) have committed to implementing the recommendations - more are likely to follow.

We aim to build a coalition committed to funding the futures of talented EMBs across the country. Finance should be based on merit, not background. The time to act is now.

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Monder Ram

Director, Centre for Research in Ethnic Minority Entrepreneurship

Aston University