Shari Leigh of the Black Business Network says there is a need for systemic change
Are Britain’s Black entrepreneurs being underserved by banks? According to a new report from Lloyds Banking Group, that appears to be the case.
The study – Black. British. In Business and Proud – suggests that just 30 percent of Black business owners approach banks to inquire about finance, with only 20 percent going on to take out loans. As the report sees it, the consequent reliance on other forms of funding – such as family and friends – acts as a drag on the growth potential of many ventures.
So what can be done? Well, first you have to understand the problem. Gary Lapthorn is Head of Sustainability and Responsible Business at Lloyds and as he explains, the bank’s research has provided a means to gather data on the the Black business community that was not, hitherto, easily available. Prompted by the killing of George Floyd in the U.S. and the rising importance of the Black Lives Matter movement, the bank began to look at its own record in serving Britain’s Black community. As a result of this reflection, it made a commitment to implement improvements. The first step was to drive changes internally – for instance by increasing the number of Black employees within the organization and nurturing their careers. “The second step was to take the internal and make it external.”
The Need For Data
Gary Lapthorn of Lloyds says positive action can build trust
In practice, that meant being more attuned to the needs of Black business people. And in addition to partnering with organizations such as the Black Business Network and the Black Business Advisory Committee, the bank recognised the need for data that could drive action. “We needed to underpin what we were doing with research,” says Lapthorn.
This year’s survey is based on interviews with about 1,000 people, most of whom are in business already, with a smaller number at the aspiration stage. Among those who have ventures up and running, 20 percent described themselves as “side hustlers” while 80% said running a business was their main activity. The aspirant group was comprised of employees and students.
In other words, the report was not necessarily focused on the VC or angel-backed entrepreneurs but on a much broader swathe of business owners. In many ways the kind of entrepreneurs who form the backbone of the British economy.
So, what role do Black entrepreneurs play in stiffening that backbone? Surprisingly perhaps, there is a shortage of data. According to a survey published in 2021 by diversity advocacy organization MSDUK and open economy think tank OPEN Network, minority-owned businesses contribute £74 billion to Britain’s economy. We can assume that Black business owners are an important constituent of that wider grouping but the numbers are elusive. “A lot of the available research focuses on the wider BAME (Black, Asian and Minority Ethnic) community,” says Shari Leigh, founder of the Black Business Business Network. “It’s really hard to speak to the Black community in terms of their GDP contribution.” Again, this underlines the need for research specific to Black entrepreneurs.
Trust Deficit
So to return to the original question, are Black business owners being well served by the banking system?
Well, the report suggests there is a trust gap between Black business owners and formal institutions such as banks. Only 40 percent of respondents said they trusted banks (down from 43 percent last year) and in practical terms that means a significant number are seeking advice and also financial support from elsewhere. For instance, while 31 percent said they sought help from family and friends and 26 percent cited community groups as a source of support, only 12 percent saw banks as their first port of call.
A Lack Of Trust
The reasons for this are complicated but perhaps also obvious. Leigh says many Black business owners have faced discrimination both in terms of their personal finance and the funding of their companies, while also – in statistical terms – often finding themselves at the wrong end of Britain’s growing wealth gap. “There is a feeling that there will be discrimination,” says Leigh. “So there is a lack of trust.”
Lapthorn acknowledges the problem. “Our survey finds that two-thirds of businesses have been discriminated against in their entrepreneurial efforts,” he says.
These concerns explain why many Black entrepreneurs turn to family, friends and the community for support. But is it a bad thing? After all, money borrowed from family may be on better terms, with repayments more flexible, than the deals offered by banks. You might also argue that for some businesses, borrowing smaller sums and keeping debt levels low might be a smart move.
But ruling out bank finance limits options. “The average family and friends loan is about £2,000,” says Leigh. For some businesses that would be fine, but for many it won’t be enough to properly launch or maintain a venture. With bank finance the average is £5,000. Not a huge sum but better.
And as Leigh adds, there is less experience of running companies in the Black community, so entrepreneurs don’t necessarily get the advice or mentoring they need.
So what might improve the levels of trust between financial institutions and potential business customers from the Black community? Lapthorn says there is some good news. “Our survey finds that 61 percent of those who have seen positive action on the part of banks now trust the banks.
What does positive action look like.The report makes recommendations. These include creating bespoke levels of support for businesses across various stages. The fostering of a support ecosystem. And the development of a community of changemakers and ambassadors. Lapthorn also stresses the need for “cultural fluency” within banks to break down barriers between institutions and Black customers. Training of staff is key. Lloyds has also undertaken initiatives such as the establishment of an information hub and the creation of instructional videos.
Systemic Change
Leigh says there is a need for systemic change around access to credit. For instance, banks should address processes that make it harder for those who aren’t homeowners to take out loans or even open accounts.
Of course, there are other concerns at the moment. The U.K. has arrived at a moment of financial crisis, but even if that wasn’t the case, businesses would face some strong headwinds. As the report points out, high inflation and economic uncertainty is hitting sectors, such as hospitality, leisure and beauty particularly hard. These are industries where significant numbers of Black entrepreneurs are clustered. That perhaps makes it more important to ensure that businesses from the black community are well served by banks.
