UK ethnic minority-led businesses (EMBs) are three times less likely than White British-led businesses to have their lending product applications accepted for the full amount, according to new research for the Lending Standards Board (LSB) by RFI Global.
Just 19% of UK EMBs applying for a lending product in the last 12 months had their application accepted for the full amount, compared to 58% of White British-led SMEs.
At the same time, the research found that EMBs are among the UK’s most ambitious and high-growth enterprises: 29% of EMBs are looking to grow international sales and 60% are looking to expand into new products, channels or locations; for White British-led SMEs, the figures are 17% and 44%, respectively.
EMBs far more likely to experience lending challenges – and to have cause for complaint
The research identified a number of areas where EMBs have very different experiences when seeking to access financial services compared to other, White British-led, businesses. These include:
• More frequent challenges: 90% of EMBs said they experience challenges when applying for lending, compared to 69% of White British-led SMEs.
• Complaints are more likely: 44% of EMBs have made a complaint about their lender in the last 12 months, more than double the 19% of White British-led SMEs who have done the same. The leading cause of complaints for EMBs, flagged by 53% of these businesses, was being ‘unfairly declined’ – just 18% of White British-led businesses made this type of complaint.
• Concerns about complex documentation: Complex documentation requirements are a much bigger concern for EMBs than for other businesses, with this issue featuring in EMBs’ top-five challenges but not in the top-five challenges for other SMEs.
• More collateral requirements: 58% of EMBs were accepted for lending, but only with a personal guarantee – for other businesses this figure was 47%. Collateral requirements featured in EMBs’ top-five lending challenges, but not in top-five for other businesses.
• Higher fintech usage: 64% of EMBs use at least one fintech, more-than double the 30% figure for White British-led SMEs.
To address the challenges EMBs face when seeking finance, the LSB is launching a new Access to Financial Services for Ethnic Minority-led Businesses Code. The Code, announced last autumn and backed by the All-Party Parliamentary Group for Ethnic Minority Business Owners, will support signatory financial services firms’ efforts to boost access to financial services for EMBs.
The Code will commit its signatories to: reducing EMBs’ barriers to financial products and services by ensuring EMBs have access to the right products and services at the right time; improving their awareness of EMBs’ needs and to take these into account throughout the lifetime of customer relationships; and sharing best practice to improve outcomes for EMBs across the financial services sector.
Emma Lovell, chief executive of the LSB, said: “Ethnic minority-led businesses are among the UK’s most ambitious and innovative SMEs, but, all-too-often, they face unique challenges when trying to access the finance they need to achieve their goals. There’s an urgent need for the financial services sector to break down the barriers to finance facing EMBs and help them unlock their potential – in turn, helping to drive UK growth.
“The demand for finance among EMBs is certainly there: the research shows that 40% of EMBs are looking to borrow in the next year, almost double the 24% of all businesses in the same position. The barriers to finance for EMBs are complex, but include communications challenges and a lack of understanding among financial services firms of EMBs’ particular needs and the contexts they operate in.
“The lending support needed by EMBs differs from the wider SME market, and a tailored approach is required. At the moment, EMBs’ expectations aren’t being met consistently across the financial services sector: the research shows that, out of the top-five factors that drive EMBs’ lending choices, EMBs feel lenders are falling short on four of them.
“A consistent, tailored approach to EMB access to financial services is crucial to support the ambitions of EMBs. By tackling these barriers head-on, financial institutions can unlock growth opportunities within this dynamic business community, while contributing to a more inclusive SME landscape. The Code is an opportunity for the financial services sector to make a step-change in its treatment of EMBs.”
