Martin McTague
National Chair, Federation of Small Businesses (FSB)
Learn about the challenges women and those from ethnic minority backgrounds face in getting the finance their businesses need.
Any small business owner will tell you how vital it is for them to be able to access the finance they need to invest and grow or tide them over rough patches. However, this is often greater for women and those from ethnic minority backgrounds.
Women face financial disparities
FSB research found that women small business owners are less likely to say that finance applications are easy to navigate (24% of women vs 40% of men) and that they are fully aware of the financing options available to their business (18% of women vs 54% of men — three times as many).
The British Business Bank and other partners in the Investing in Women Code found that the average financial investment in women-led businesses in 2022 stood at a mere third of the average approved for their male-led counterparts.
Only two in five EMBs that planned to apply for finance in the near future thought they would be successful, compared with over half of all SMEs.
Financial barriers limiting EMBs
Ethnic minority businesses (EMBs) also face hurdles when applying for business finance. According to a report from the Centre for Research in Ethnic Minority Entrepreneurship, only two in five EMBs that planned to apply for finance in the near future thought they would be successful, compared with over half of all SMEs.
The financial constraints on women-led firms and EMBs are restricting their growth potential; if unlocked, billions could be added to the economy.
User-friendly, tailored and transparent lending
Lenders can play a part by making sure their processes are as user-friendly as possible and that borrowers from underrepresented groups can get tailored advice and support from a relationship manager, either in person or virtually. Capturing better demographic information on loan applicants and publishing the success rates of different demographic groups could help build trust among prospective applicants.
We are concerned that blanket demands for personal guarantees have an especially adverse effect on women and people from ethnic minority backgrounds. We are calling for the Financial Conduct Authority to gather more information from lenders.
Empowering diverse entrepreneurs
The rise of open banking holds some intriguing possibilities for opening up access to finance to entrepreneurs from all backgrounds. If properly harnessed, it enables seamless integration between banks and accounting software, providing real-time access to financial data.
Every entrepreneur, regardless of gender or ethnicity, should be enabled to reach their business’s full potential to allow them to fulfil their dreams and get the economy humming again.
