Minority business owners and debt: What gets in the way of pursuing funding?
For any business owner, taking on debt is a decision that deserves careful consideration.
Borrowing can provide the capital needed to invest, hire, expand, or simply manage cash flow. But for minority business owners, the decision can carry an additional layer of complication.
The concern is not necessarily an unwillingness to take risks. In fact, research suggests the opposite.
Ethnic minority-led businesses are often highly ambitious, with strong appetite for growth, and finance. So, what gets in the way of pursuing funding?
Well, studies have shown that many business owners from minority backgrounds have historically typically faced greater challenges in their lives, both at home and within the workplace.
That can make borrowing feel riskier.
Ambitious minority businesses can be more cautious around lending
It would be easy to assume that minority business owners are simply more risk averse. The research tells a more complicated story.
Research cited in the Ethnic Minority Businesses Report found that 57% of ethnic minority businesses (EMBs) met the definition of an "Ambitious Risk Taker", compared with 27% of SMEs overall.
EMBs were also more likely to be planning to grow, take on staff, develop new products or services, and expand internationally.
The Lending Standards Board (LSB) found a similar appetite for growth. Its research found that 29% of EMBs were looking to grow international sales, while 60% were looking to expand into new products, channels, or locations. For White British-led SMEs, the figures were 17% and 44% respectively.
So, the issue isn't a lack of ambition. As an EMB owner, you may have plenty of lofty goals and long-term plans.
Instead, as you may have experienced, many minority business owners appear to be balancing ambition with a heightened awareness of what could happen if borrowing goes wrong.
Previous negative experiences with finance can shape the future decisions of EMB owners
There is another important factor in play: trust.
Research from Fair4All Finance, based on IPSOS research, found that 22% of people from minority ethnic groups had experienced racial discrimination when dealing with financial providers.
Qualitative research also recorded experiences of people being treated with suspicion or accused of lying.
Meanwhile, research from Lloyds Banking Group found that only 43% of Black business owners believed financial service providers had their best interests in mind. Just 13% of Black-owned businesses looked to banks for financial support, with business owners more likely to turn to family for a loan.
These experiences can have a lasting effect.
If you don’t feel understood or fairly treated by financial institutions, applying for finance can become an intimidating prospect.
The fear isn't necessarily about debt itself. It can be about entering a system where you aren’t confident you will be listened to or assessed fairly.
The research suggests this can also contribute to self-exclusion, with some founders avoiding applications because they expect to be rejected.
It’s why at First Enterprise, we like to see ourselves as more than a lender, and rather a partner in growth. We provide a people first approach, giving you tailored support every step of the way with decisions made my human beings, not algorithms.
The numbers underline the challenges ethnic minority business owners face
There is evidence that some concerns ethnic minority owners have are grounded in real differences in lending experiences.
According to research commissioned by the Lending Standards Board, just 19% of UK ethnic minority-led businesses applying for a lending product had their application accepted for the full amount, compared with 58% of White British-led SMEs.
The same research found that 90% of EMBs experienced challenges when applying for lending, compared with 69% of White British-led SMEs.
EMBs were also more than twice as likely to have complained about their lender, with being "unfairly declined" the leading reason for complaints.
Perhaps most significantly, 40% of EMBs said they were looking to borrow within the following year, compared with 24% of businesses overall. In other words, there is strong demand for finance, but significant friction between wanting finance and feeling confident about accessing it.
That gap is important.
As an EMB owner, you could simultaneously believe that finance might help you grow and worry that taking it on could leave you exposed.
Debt can feel different when business growth has been harder to achieve
The research also highlights differences in business performance and maturity.
The UK Finance’s 2023 Ethnic Minority Businesses Report found that EMBs were more likely to be younger businesses. Among them, 59% had been trading for five years or less, compared with 30% of SMEs overall.
They were also more likely to have a worse-than-average risk rating or no risk rating at all.
In the same research, 30% of EMBs described themselves as "Struggling", compared with 18% of SMEs overall, while 56% had made a profit in the previous year compared with 75% of SMEs overall.
More than half had also injected personal funds into their business, with many saying they felt they "had" to do so.
This creates a difficult cycle.
A business may need finance to grow, but a lack of previous finance, lower profits, or limited collateral can make borrowing more difficult.
Meanwhile, all these factors may make you feel reluctant to take on debt because you have already invested significant personal resources in keeping the business going.
It is understandable that the prospect of another financial commitment can feel daunting.
Caution among minority business owners isn't the same as a lack of ambition
Perhaps the most important takeaway from the research is that minority business owners shouldn't be characterised as reluctant entrepreneurs.
The evidence suggests that many are highly ambitious and actively looking for ways to grow.
What you, and many other EMB owners, often want is not simply access to money, but access to finance that feels manageable, transparent, and appropriate to your circumstances.
The research found that minority and women founders can face overlapping barriers including reduced access to capital, fewer networks, bias, and fewer financial resources.
As a result, your questions when considering finance might go beyond interest rates and repayment periods.
You could also be asking:
Will I be taken seriously?
Is this safe?
Can I trust this lender?
Will I get support if something goes wrong?
That is why the relationship surrounding the finance can matter just as much as the finance itself.
Why it’s important to make borrowing feel less risky for EMBs
For business owners considering debt, the answer isn't to ignore the risks. Borrowing should always be approached carefully, with a clear understanding of affordability, repayments, and what the funding will achieve.
But risk can be managed.
A clear business plan can help you establish exactly why the funding is needed and how it will generate value. Cashflow forecasting can show you whether repayments remain affordable under different scenarios. Taking a manageable amount rather than borrowing more than necessary can also help you reduce financial pressure.
And perhaps most importantly, you should consider looking for finance providers that take the time to understand your circumstances.
The research suggests that this is one area where Community Development Finance Institutions (CDFIs) can play an important role.
CDFIs are described as an accessible option for businesses that may have been declined elsewhere or excluded themselves from traditional finance. As a CDFI, First Enterprise’s approach takes into account the wider context of your business, alongside its financial information, while also offering ongoing guidance and support.
If you’ve previously found business finance intimidating, that human element can make a significant difference.
Turning caution into confidence; why you should get in touch with First Enterprise
Being cautious about debt isn't necessarily a weakness. In many cases, it reflects an entrepreneur who understands exactly what is at stake.
The challenge is making sure caution doesn't become a barrier to opportunities in front of you.
Minority-owned businesses are ambitious, innovative, and hungry for growth. The evidence shows that many want to invest, expand, employ people, and enter new markets. But if historic inequalities, difficult lending experiences, and a lack of trust make finance feel unnecessarily risky, businesses may miss opportunities that could otherwise help them thrive.
This doesn’t mean you should take on debt simply for the sake of borrowing.
It should be about making sure that when funding is the right option, you have access to the information, support, and responsible finance you need to make an informed decision.
Because the right question isn't simply, "Should I take on debt?"
It is: "Could the right finance, structured in the right way, help my business move forward without putting its future at unnecessary risk?"
Our diverse team of Investment Managers and Business Advisors understand many of these struggles first hand. They are here to work with you, to hear your story, and to ensure that if you do decide to take on a loan, you do so with confidence.
We’ve worked with many EMBs over the years and helped them succeed through funding. You can discover their stories and learn about their own struggles growing their businesses here: Success Stories
To get the conversation started on your own funding journey, simply complete the form below or give us a call at 0345 602 7355.
We’re here to help you overcome any fears or concerns about business finance, so you can utilise funding to take your business to the next level.
Please note:
This article is for general information only and does not constitute advice. All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article.
We always recommend that you seek direct financial advice from a relevant expert or professional before making any financial decisions.
First Enterprise is a not-for-profit, FCA-regulated finance provider offering unsecured loans from £500 to £250,000 for start-ups and growing businesses across the UK.
We support businesses that struggle to access mainstream finance, with a focus on underrepresented groups. Funding is delivered through government-backed national and regional programmes.
We offer human-made lending decisions, a dedicated advisor for every applicant, and no penalties for early repayment.
