Ethnic Minority
Businesses
Initial analysis from the SME Finance
Monitor Q2 2012- Q2 2013
An independent report by
BDRC Continental, June 2014
2
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
3
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%
5
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.
6
Today’s presentation
Context
Borrowing events in the last 12 months
The future
7
Context
Borrowing events in the last 12 months
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%
Mixed Asian Black Chinese
5%
33%
54%
8%
All SMEs
Age of owner/managing partner
Base : All respondents 25,032 244/805/166/74
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)
11
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%
Mixed Asian Black Chinese
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)
12
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%
Mixed Asian Black Chinese
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?
Base : All respondents 25,032 244/805/166/74
13
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 Asian Black Chinese
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%
Mixed Asian Black Chinese
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
15
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%
Mixed Asian Black Chinese
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?
Base : All respondents 25,032 244/805/166/74
17
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%
Mixed Asian Black Chinese
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
Base : All respondents 25,032 244/805/166/74
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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%
Mixed Asian Black Chinese
58%
24%
18%
All SMEs
Has the business received an injection of personal funds from the owner/directors in the past 12 months?
Base : All respondents 25,032 244/805/166/74
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
Borrowing events in the last 12 months
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”
24
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%
Mixed Asian Black Chinese
25
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%
Mixed Asian Black Chinese
8%
5%
All SMEs
Q221 Approaches from main and other banks
Base : All respondents 25,032 244/805/166/74
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
Borrowing events in the last 12 months
The future
28
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
29
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
31
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
Base : All respondents 25,032 244/805/166/74
32
Awareness of initiatives Q4 12-Q2 13
14% 11% 10%
2%
17% 18% 22%
14% 18%
23%
40%
15%
Mixed Asian Black Chinese
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