How to attract investment as an ethnic minority business

Business owners who are Black, Asian or from another ethnic minority background can often struggle to find funding for their business. Read our guide on how to overcome barriers to finance and attract the investment your business needs.

Funding is a critical piece of the start-up puzzle. Securing investment in your business can prove an amazing boost. It can vindicate your start-up idea and hopefully launch your new venture on the path to success.

External financial support is vital, with the British Business Bank’s Small Business Finance Markets 2021 report finding that nearly half (45%) of all small businesses in the UK applied for external financial support in 2020. This was primarily driven by the impact of Covid-19. Gross lending to smaller businesses hit £104 billion in 2020 – a rise of 82% over 2019.

Pre-Covid saw 36% of the UK’s 5.7 million smaller businesses take on finance, with over 1,000 start-ups launching each day before the pandemic in 2018 and 2019, according to the British Business Bank’s Small Business Finance Markets 2018/19 report.

 
 

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Start-up funding and inequality

With start-ups needing funding to launch and operate, some new business owners find securing loans and investment an unequal struggle.

A report by the British Business Bank looked into how ethnicity, gender, location and education affect opportunities for entrepreneurs. It found that access to finance can be a major barrier for business owners from Black, Asian or Other ethnic groups. Indeed, 39% of Black business owners stop working on their business idea because they’re unable to raise funding. 49% of Asian business owners do too.

A core challenge for minority-owned businesses is the perception that market size is small. This is especially true for businesses that target the needs of customers of the same ethnicity.

Tackling assumptions

“Finance and funding is a big thing,” agrees Melissa Sinclair, founder of Big Hair + Beauty, a haircare brand created for afro and curly hair. “I think banks assume that Black-owned businesses that sell to the Black community are riskier.

“The assumption is often that we don’t have enough people to sustain a brand like ours,” explains Melissa. “People think there isn’t enough economic wealth within the Black community to afford luxury products. So it’s more difficult to prove a business model.”

It’s a systemic challenge that Melissa found particularly obstructive during the pandemic when demand for at-home beauty treatments soared.

“I’m friends with other brand owners in the beauty industry. They don’t sell to my market and happen not to be Black-owned,” says Melissa. “They were able to get their overdrafts extended by considerable amounts to buy extra stock. In comparison, the bank wanted a lot more from me.

“We showed them customer emails asking about products. The bank wanted a three-year cash flow and evidence that the market existed. We’re an existing business. We’re growing. We didn’t get the funding or the extension of the overdraft at the time, but luckily we were able to sell three months of stock quickly, which allowed us to fund our growth.”

 

How ethnic minority businesses can attract funding

Numerous UK organisations and groups provide investment and support for ethnic minority founders. There are also several other ways to gain help for your start-up business.
 

1. Government funding initiatives

The UK Government doesn’t discriminate against any ethnicity when awarding grants or providing access to funding. Government-backed schemes such as Start Up Loans let you apply for funding to get your business off the ground. Between 2012 and 2018, Start Up Loans provided £400 million to 55,000 businesses – with one in five business loans going to ethnic minority start-ups.

The Government publishes a list of organisations that offer finance and support for businesses throughout the UK.

 

2. Join minority support networks

Explore joining dedicated business support networks set up to help Black, Asian and Other ethnic groups. There are several networks that focus on supporting minority groups in applying for funding for their business idea. (Note: This isn’t a complete list.)

 

3. Friends, family and community

As it can be more difficult for minority-owned businesses to get off the ground, one funding route is through family, friends and community initiatives. Loans, donations and support from friends and family can help small businesses establish and prove their business model, opening the door to more mainstream funding sources.

 

4. Organisational grants

Businesses and large corporations recognise the value of investing in minority-owned start-ups. Some offer grants and funding to support businesses owned by people from Black, Asian and Other ethnic groups. Business of Colour has a dedicated section to open grant schemes, with corporations such as Facebook, Lloyds and Asda offering grants.

Dedicated funds, which support investment into specific types of business, are worth investigating. The Creative Debuts Black artists fund, for example, offers £2,000 each month to Black-owned creative businesses and artists in the UK.

 

5. Angel investors

Use social media networks to research and connect with Angel investors and start-up investors who actively seek to invest in businesses that support diversity. Organisation such as Ada Ventures, Diversity VC and Included VC actively provide funding for minority-owned businesses.

 

6. Crowdfunding

Crowdfunding is growing in awareness as a way to raise money to get your business started. While popular crowdfunding platforms such as Crowdcube and Seedrs offer a way to test your business idea and pitch for investment from small investors, some dedicated crowdfunding platforms such as the Black Funding Network have been set up specifically to cater for minority ethnic minority-owned businesses.

 

7. Business plan

Whichever route you explore to raise funding, you’ll need a robust business plan that shows the potential for your business to scale and make money. Traditional investors such as banks will want to be sure that your business will pay back any loan along with interest.

Investors will want to see the potential for significant growth so that they can get a return on any investment they make in your business. Seek expert advice on putting together a business plan. Create a multi-year forecast showing how much your business will cost to operate and how much profit you expect it to make.

 

8. Promotion

Creating a buzz about your business can help secure funding. Use social media to both follow other business leaders and influencers, as well as create engaging content, competitions and offers via social channels.

Refer-a-friend marketing, where customers get a discount by referring more customers, is a great way to grow your business. A growing business with a large number of followers can be an appealing prospect for investors and gives them confidence in the demand for your product or service.

 
 

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Disclaimer: While we make reasonable efforts to keep the information on this page up to date, we do not guarantee or warrant (implied or otherwise) that it is current, accurate or complete. The information is intended for general information purposes only and does not take into account your personal situation, nor does it constitute legal, financial, tax or other professional advice. You should always consider whether the information is applicable to your particular circumstances and, where appropriate, seek professional or specialist advice or support.

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