Ethnic Minority Businesses - Access to Finance Report 2014

Ethnic Minority

Businesses

Initial analysis from the SME Finance

Monitor Q2 2012- Q2 2013

An independent report by

BDRC Continental, June 2014

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Where this data has come from

• The SME Finance Monitor was commissioned to provide a robust and respected independent

source of information on the demand for, and availability of, finance for SMEs in the UK

• It is made available to all interested parties as a basis for decision making and strategy setting

• The study covers:

• Overdraft and loan events in the past 12 months

• The appetite for new/renewed facilities

• The outcome of applications made, including rates and fees

• Reasons for not borrowing

• Future plans, including demand for future finance

• Awareness of Taskforce, and other, initiatives such as the Funding for Lending scheme

• The survey has been running since early 2011. In Q2 2012 a new question was added to establish

the ethnic background of the owner, senior partner or majority shareholder

• This chart pack summarises the first EMB report produced from this data and covers the period Q2

2012 to Q2 2013. A further report is planned for later this year covering the period up to Q2 2014

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Today’s presentation pack

• Provides the key highlights from the EMB report

• And compares the views of the various ethnic minority groups to those of SMEs overall

As usual…

• It is not our remit to assert whether the findings are “good” or “bad”

• And these results are the “tip of the iceberg” – over 60,000 interviews have been conducted on the

SME Finance Monitor in total to date

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Defining ethnic minority businesses

Which category best describes...

IF SOLE PROPRIETOR : your / the owner's ethnic background?

IF PARTNERSHIP : the ethnic background of the partners or majority of the partners?

IF LIMITED COMPANY : the ethnic background of the majority shareholder?

White - British /White – Irish / Any other white background

Mixed - White and Black Caribbean / White and Black African / White and Asian / Any other mixed

background

Asian or Asian British – Indian / Pakistani / Bangladeshi / Any other Asian background

Black or Black British – Caribbean / African /Any other Black background

Chinese or ethnic group – Chinese / other ethnic group

• 3% of SMEs identify as Asian, 1% each for Mixed and Black and less than 1% for Chinese/other

(three quarters of this group is Chinese)

6%

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Understanding ethnic minority businesses

• One of the objectives of this report is to identify areas where ethnic minority businesses might differ

from SMEs overall

• When highlighting these differences there are two important considerations:

• To take into account any demographic differences between EMBs and SMEs overall that

would naturally result in a difference (for example if EMBs were typically smaller, younger

businesses, one might expect them to have a higher proportion rated “above average risk”,

as this is true for SMEs generally)

• The fact that a difference continues to exist even once demographics have been controlled

for does not mean that ethnicity is necessarily the cause of the difference per se

• The charts in this pack highlight where a difference is statistically significant to SMEs overall, once

demographics have been controlled for.

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Today’s presentation

Context

Borrowing events in the last 12 months

The future

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Context


The future

8

There are some clear differences in sector profile for individual ethnic groups Sector

4% 7% 22% 12% 3% 7% 26% 6% 12%

Agric Mfg Constr Whole/Retail Hotels & Rest Transport Prop/Bus Serv Health Other Comm

Base : All respondents All respondents 25,032 244/805/166/74

All SMEs

Asian Chinese Black Mixed

Chinese, and to a certain extent Asian, SMEs are more likely to be found in the Hotels &

restaurant sector, and in Property and Business Services. Asian SMEs are also more likely to be

found in the Wholesale/Retail sector, while Black SMEs are more likely to be found in

Construction, and Mixed SMEs in the Other Community sector

32% 28%

39%

25%

18%

9

37%

15%

28%

20%

All SMEs

These ethnic minority businesses are typically somewhat younger than SMEs generally Age of business– Q2 12-Q2 13

2-5 yrs

6-9 yrs

10+yrs 25% 29%

19% 26%

9% 11%

19% 13%

31%

32% 37% 42%

35% 28% 24%

18%

Mixed Asian Black Chinese

Mixed, Asian and Chinese businesses are all more likely to be younger with Mixed

and Asian SMEs more likely to be Starts (set up in the 2 years prior to interview)

When was the business set up?

Base : All respondents 25,032 244/805/166/74

Starts

10

… And led by slightly younger owners/managers, notably for Chinese SMEs Age of owner Q2 12-Q2 13

2% 5% 1% 0%

25% 22% 29% 19%

69% 63% 66%

64%

4% 11% 5%

17%


5%

33%

54%

8%

All SMEs

Age of owner/managing partner


18-30 51-65 31-50 66+

Asian SMEs are less likely to have an owner over 50. Chinese SMEs are more likely

to have an owner under 30. The opposite is true for Mixed and Black SMEs

22% of all SMEs are led by a woman. This ranges from 33% of Chinese SMEs to

12% of Asian SMEs (Mixed and Black SMEs in line with market)

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These SMEs are somewhat less likely to have a minimal or low external risk rating Current external risk rating Q2 12-Q2 13

71%

57% 63%

58%

19%

29%

31%

28%

8% 11% 3%

8%

2% 3% 3% 6%


54%

30%

11%

5%

All SMEs

External risk rating

Base : All with a risk rating 22,855 225/753/144/65

Minimal Average Low Worse than average

Mixed SMEs are more likely to have a “worse than average” external risk rating, and

are also more likely to have had a self-reported credit issue (22% v 12% overall)

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Asian and Chinese SMEs are more likely to have 1-9 employees than SMEs overall Number of employees – Q2 12-Q2 13

10-249 emps 1-9 emps 0 emps

76%

61% 71%

49%

21%

36% 27%

47%

3% 3% 2% 4%


74%

22%

4%

All SMEs

Chinese and Asian SMEs are more likely to have 1-9 employees than

SMEs overall, and less likely to be one man bands

Q7/8 Apart from you, how many employees does the business have?


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SMEs in these ethnic groups are less likely to have made a profit in the previous 12 months trading All SMEs – Q2 12-Q2 13

Q241 Base : All respondents 25,032 244/805/166/74

64%

13%

15%

8%

Profit

Broke even

Loss

DK

5% 10% 16%

3%

28% 20%

30%

20%

17% 18%

14%

19%

50% 53% 40%

58%


Mixed and Black SMEs were more likely to have reported a loss for their previous 12

months trading. All groups were less likely to report a profit than SMEs overall, even once

the “don’t know” answers were excluded

69% excl DK 53% 58% 48% 60%

Indicatively, Black and Chinese SMEs in business for 2 years+ were less likely to have

grown in the previous 12 months (a quarter have v 39% overall). Half of Mixed SMEs have

stayed the same size, while Asian businesses are in line with the market (44% grown)

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A third of Asian, Black and Chinese SMEs hold more than £5,000 in credit balances Number of employees – Q2 12-Q2 13

£5k+ Up to £5k None

11% 4% 1% 1%

66%

62% 68% 65%

23% 34% 31% 34%


5%

66%

29%

All SMEs

As overall, SMEs from ethnic minority groups are likely to hold credit

balances. Black SMEs are less likely to hold credit balances of under £5,000

Q244 Average credit balances held

Base : All respondents excl DK 18,656 190/608/130/57

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4 out of 10 SMEs overall use external finance

Use of external finance – now and in past 5 years Q2 12-Q2 13

Use any external finance now In past but not now Not in last 5 years

50% 52% 50%

62%

1% 2% 10%

1%

49% 47% 40% 38%


54%

4%

41%

All SMEs

Once business demographics are taken into account Mixed SMEs are more likely to be using

external finance, and Black SMEs less likely

Q14/15 Has the business used any form of external finance in the past 5 years / which of the following forms does it currently use?


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Chinese SMEs are more likely to meet the definition of a ‘Permanent non-borrower’ of finance Permanent non borrowers Q2 12-Q2 13 Permanent non-borrowers

26% 30%

18%

53%


36%

All SMEs

Permanent non-borrowers seem dis-inclined to borrow (currently or in the near

future), but feel that nothing has stopped them applying. Mixed and Black SMEs are

less likely to meet the definition of a PNB, while Chinese SMEs are more likely


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Black SMEs are more likely to have received an injection of personal funds in the previous 12 months Injection of personal funds in past 12 months – Q2 12- Q2 13

Yes – chose to Yes – felt had to No personal funds injected

49% 53%

37%

54%

32% 26%

40%

30%

19% 21% 23% 16%


58%

24%

18%

All SMEs

Has the business received an injection of personal funds from the owner/directors in the past 12 months?


1.9 million SMEs (42%)

had an injection of

personal funds in the

previous 12 months

51% 47% 63% 46%

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Context


The future

20

21%

71%

8%

7 out of 10 SMEs said they had had no wish, or need, to apply for borrowing in the previous 12 months Borrowing profile in last 12 months Q2 12-Q2 13

All SMEs

Q25/26/115/209

Base : All respondents 25,032

21% had a borrowing event,

typically applying for new or renewed

facilities, or an automatic renewal of

facilities: 955,000 SMEs

71% did not apply and did not

feel anything had stopped them,

so 3.2 million SMEs were “happy

non-seekers”

8% wanted to apply but didn’t:

meaning that 364,000 SMEs were

“would-be seekers”

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71%

8%

21%

ALL SMEs

In summary, EMBs show different borrowing behaviour over the 12 months prior to interview Borrowing profile summary– Q2 12-Q2 13

Mixed and Asian SMEs were more likely to have had a borrowing event and

less likely, along with Black SMEs, to be a ‘Happy non-seeker’. This latter

group were also more likely to be a ‘Would-be seeker’ of finance.

Q115/209

Base All respondents 25,032 244/805/166/72

63% 65% 60%

78%

10% 11% 20%

7% 27% 24% 20%

15%


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There is limited data on the outcome of applications for finance made by EMBs

Borrowing outcome– Q2 12-Q2 13

Overdrafts: 70% of all applicants were

successful with an application for a

new/renewed overdraft Q212-Q213.

On very limited base sizes, the data suggest

that around half of EMB applicants ended

the process with no facility, compared to a

quarter of applicants overall

Loans: 59% of all applicants were

successful with an application for a

new/renewed loan Q212-Q213.

On very limited base sizes, the data suggest

that the proportion of EMB applicants ending

the process with no facility, was very similar

to the third of applicants overall, as more

took other funding

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Approaches by bank expressing willingness to lend Q2 12-Q2 13

6%

11%

4%

7% 8% 6%

10%

3%


8%

5%

All SMEs

Q221 Approaches from main and other banks


By bank By another bank

Asian SMEs are more likely to have been

approached by their own bank expressing a

willingness to lend

Mixed and Black SMEs are more likely to have

been approached by another bank expressing a

willingness to lend

1 in 8 SMEs has been approached by a bank expressing a willingness to lend - net approaches vary little by ethnicity

12% 13% 14% 14% 9%

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Context


The future

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48%

All SMEs

55% 56% 53% 45%

Mixed Asian Black Chinese*

Half of SMEs plan to grow – ethnic SMEs typically slightly ahead All planning to grow Q4 12-Q2 13

EMB groups are slightly more likely to be planning to

grow (care re small base for Black and Chines SMES)

Base : All respondents 15,000 152/518/96/36 CARE RE SMALL BASE

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0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Economic climate

Legln & Regs

Cash flow

Access to finance

Advice

Staff

“Access to finance” is seen as more of a barrier for Mixed, Asian and Black SMEs 8-10 obstacles to running the business in next 12 months – Q212-Q213

Base : All respondents All respondents 25,032 244/805/166/74

All SMEs

Asian Chinese Black Mixed

Mixed

Mixed

Asian

Asian

Asian

Black

Black

Black

EMBs more likely to see

each factor as a barrier

are marked on each axis.

Chinese SMEs were less

likely to rate access to

finance or legislation as

major barriers.

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Looking ahead, two-thirds of SMEs expected to be “happy non-seekers” of external finance Likely to apply / renew in next 3 months – Q212-Q213

21% future “would-be

seekers” in total

65% Happy non seekers - Unlikely to apply/renew in

next 3 months and happy with that decision

14% Likely to apply / renew in

next 3 months

18% “Would be seeker” – no

immediate need identified (but

foresee barriers if a need

emerged)

3% “Would be seeker” –

with identified need (that

unlikely to apply for)

Q229

Base : All respondents 25,032

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The proportion of ‘Future happy non seekers’ varies by ethnic group Time series: Anticipated borrowing profile for next 3 months

Have plans to apply/renew Would be seekers - with need Would be seekers – no need Happy non-seekers

65%

52% 52%

36%

76%

18%

20% 21%

29%

15% 3%

8% 3% 8%

2% 14% 20% 24% 28%

7%

All SMEs Mixed Asian Black Chinese

Asian and Black SMEs are more likely to have plans to borrow in the next 3 months, and are less likely to be

‘Happy non-seekers’. Black SMEs are more likely to be ‘would-be seekers’.

Q229


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Awareness of initiatives Q4 12-Q2 13

14% 11% 10%

2%

17% 18% 22%

14% 18%

23%

40%

15%


12%

22% 26%

All SMEs

Q240

Base : All respondents 15,000 152/518/96/36 CARE RE SMALL BASE SIZES

All four groups were less likely to be aware

of the Mentors scheme

Only Black SMEs have higher than average awareness of any of the support schemes tested

52% aware of any

of 9 initiatives

tested

40% 49% 74% 34%

Appeals Mentors FLS

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Key findings

This report presents a “first cut” of the data available on EMBs, and is limited in

some instances by the sample available

The individual groups have some things in common (typically younger, with a higher

external risk rating and les likely to have been profitable) and with the exception of

Chinese SMEs they are less likely to be “Happy non seekers” of finance and more

likely to see Access to Finance as a barrier

Moving forward, more robust sample sizes will enable us to explore the key

differences between EM groups, and between EMBs and the SME population as a

whole

But the groups exhibit enough differences to justify reporting them as individual

ethnic groups, even though these differences cannot necessarily be ascribed to

ethnicity per se

Ethnic Minority Businesses - Access to Finance Report 2014

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