Access to capital is arguably the biggest challenge that faces start-up businesses in the UK. For BAME (Black, Asian and ethnic minority) businesses, the challenge is notoriously more difficult, due to a number of factors including the fact that historically, banks and major financial institutions in the UK have placed little to no emphasis on the importance of providing funding for black businesses. A number of systemic biases and varying levels of discrimination continue to put black entrepreneurs on the back foot.
Although a number of private and public sector drives to change the status quo are making significant progress, the British business arena still requires a large degree of transformation before it can be regarded as a level playing field.
In order to challenge the prevailing reality, we need to acknowledge the fact that black businesses face unique challenges when it comes to access to financing. On the level of the private sector, the disparities are undeniably evident. Between 2009 and 2019, only 0.24 percent of venture capital (VC) was invested in black businesses in the UK. To put this into perspective, during this period, only 38 black business founders were funded by venture capitalists. Considering that currently there are around 250 000 minority-led businesses in the UK, these findings paint a grim picture.
According to The Black Report, 88 percent of black founders financed their companies using their own savings or received financial assistance from family and friends as a way of circumventing the lack of interest that venture capitalists showed in supporting their ventures. While this is indeed testament to the spirit of determination and perseverance that exists within the black entrepreneurship community, it is indicative of the fact that private investors need a dramatic and urgent mindset shift.
The global call for diversity and inclusion is increasing. And as Morgan Stanley’s survey of the VC industry illustrates, discourse around racial inequality in the sector is beginning to capture investor attention and drive the paradigm shift that is urgently needed to transform the industry. A critical catalyst of change for many of the players in the sector was the advent of the Black Lives Matter movement, which garnered a renewed surge of interest in 2021.
According to the report, 61% of venture capitalists claim that the movement has impacted their investment strategy. Systemic change won’t happen overnight, but awareness around the plight of black business owners is becoming more prominent, not only in the private investment sector but also amongst some of the UK’s most established banking institutions.
A study conducted by Lloyds Bank revealed compelling insights into how black entrepreneurs view banks as potential funders. The study found that for almost 60% of black business founders, funding to drive business growth was the top form of support needed. Following closely on the need for funding, was the need to understand funding and eligibility. Of particular interest was the fact that while 57% of black business owners were aware that banks offer finance, only 13% approach banks for financial support. Furthermore, 52% of black business owners claimed to have no confidence to apply for funding in the form of a business loan or grant and only 43% (2 in 5) of black entrepreneurs trust financial institutions like banks to have their best interests in mind.
These findings represent an interesting dimension to the problem. While much evidence suggests that there is not enough support for black entrepreneurs in terms of state-led interventions and private sector initiatives, there is also evidence suggesting that the UK’s community of black entrepreneurs needs training and education around how to position their businesses and apply for funding. Thwarted by experiences of discrimination and racism, and disheartened by evidence that British colonialism and imperialism has not completely loosed its grip on British society, black entrepreneurs have turned to family and friends for funding or simply worked diligently to bootstrap their businesses using their savings.
Applying for funding is a skill. It is a process that involves knowing how to draw up a business plan that looks attractive to investors, how to be persuasive in delivering a funding pitch as well as essential skills like negotiation and business strategy.
The challenge is therefore multi-dimensional. It is both a problem of economic inclusivity and one characterised by the lack of confidence that black entrepreneurs have in themselves. The solution therefore lies in not only raising awareness around the need for more inclusive funding but also in the need for black entrepreneurs to receive training on which funding options are available, what each method requires in terms of preparation and how to position a venture for funding.
The call for this kind of education needs to be extended to institutions across the board, beginning with tertiary education, but also institutions that are geared specifically towards developing the black business sector. While many black business owners may not have access to top-tier education at schooling level due to a number of systemic challenges, this kind of training in the world outside of schooling is critical and much-needed.
Would you like to add to these perspectives? We’d like to hear more about the challenges you’ve faced as a black entrepreneur in trying to fund your venture. Share your experiences with us via social media and we’ll be in touch.