MINISTERS have been asked to remove barriers in the finance industry so that small and medium enterprises can access funds and grow to their full potential.
In a submission to the Treasury Select Committee last month, the London Chamber of Commerce and Industry (LCCI) made recommendations to support women and ethnic-minority-led businesses.
One suggestion was to create a “Strategic Growth Fund” to help tackle the funding problems ethnic minority founders and business leaders face.
Targeted programmes aimed at supporting ethnic minority-led businesses access finance were also recommended, as was promotion of such plans to ensure the widest possible reach.
LCCI chief executive Richard Burge said, “We need a thorough review of lending practices to eliminate requirements that place hurdles in the path of ethnic minority and women owned businesses.
“We must push for change and this starts with reducing red tape and exclusionary practices that create – and sustain – barriers to raising capital.”
SMEs make up a significant proportion of LCCI’s membership, which describes itself as an independent advocacy organisation for businesses in London.
In their submission, the LCCI noted that several financial institutions did not give the same level of credibility to women as their male counterparts.
Women were also less likely to even attempt to access finance, owing to a lack of guidance when applying.
Among their findings, LCCI said a lack of clarity on the financial products available made it difficult for SMEs to access loans, which in turn led to their applications being rejected.
One of their recommendations was that the government and regulators “do more to signpost to alternative lenders who are seeking to assist groups who typically cannot access funding from high street banks”.
Greater collaboration between the government, high street banks and alternative lenders could open up more opportunities for SMEs to access vital finance, the LCCI added.
According to the trade body, if these proposals were implemented it could be “a game changer” to help build thriving ethnic minority businesses across the country.
In its Ethnic Diversity in Business report published in May last year, the chamber revealed that the success rates of ethnic minority led businesses were lower compared to those of their white counterparts – despite their “enormous” contribution to the economy.
The report pointed out that the economic contribution of ethnically diverse businesses is about £25 billion to the UK’s Gross Value Added, even by conservative estimates, and other figures suggest this could be as high as £74bn.
“Minority-led businesses report difficulties with accessing funding to grow their businesses. Black people are also more likely to report negative experiences with banks and people from Asian backgrounds are likely to report difficulties with attracting funding outside of their communities,” the report said.
“It is important for bolder steps to be taken to achieve ethnic diversity in business. The economic contribution that ethnically diverse businesses make is enormous. Addressing the issues faced by these businesses is crucial to unleash the potential of everyone irrespective of their background,” wrote Tony Matharu, chair of LCCI’s Asian Business Association, in his foreword to the report.
“Work needs to be done both in engaging with minority led business owners, in examining and addressing issues with receiving funding from banks and through venture capital as well as boosting representation within the venture capital community.”
The report noted there was a higher proportion of rejection for loans of people from ethnic minority backgrounds compared to white counterparts.
“Pakistani firms are 1.5 times more likely, Bangladeshi firms are 2.5 times likely, black Caribbean firms are 3.5 times likely and black African firms are four times more likely than white firms to be denied a loan outright,” it said.
The LCCI report added, “Poor education and employment outcomes as well less success in business are features typically associated with black people. They are also less likely to receive venture capital and more likely to report problems accessing finance from banks.
“People of Indian origin on the other hand, record strong performance in education and employment and show stronger success in business. However, it appears that they struggle to access venture capital funding outside of their community. For some other Asian ethnic sub-groups, there is even lower performance on almost all noted metrics.”