Ten challenges faced by Black entrepreneurs and how to overcome them

Written by Karl George MBE (pictured), president of Greater Birmingham Chambers of Commerce Black Business Collective

In my work in business over three decades, it is clear that Black Business owners have to operate in the mainstream business networks and face unique challenges.

Through my work with the Greater Birmingham Chamber of Commerce Black Business Collective (BBC), we have identified ten critical areas where Black entrepreneurs encounter significant disadvantages compared to their counterparts.

Understanding these barriers is the first step towards creating effective strategies to support and empower Black business owners. Over the coming months, we will provide events, tools, tips and resources for tackling these challenges.

1 Difficulty in raising finance

One of the most significant challenges for Black business owners in the UK is accessing finance.

Studies have shown that Black entrepreneurs are less likely to receive loans from traditional financial institutions. When they do secure funding, it often comes with less favourable terms, including higher interest rates and smaller loan amounts.

This lack of financial support restricts their ability to start, grow, and sustain businesses, limiting their overall economic impact. This difficulty in raising finance limits the ability of Black-owned businesses to scale and invest in growth opportunities.

According to the British Business Bank’s report “Alone Together: Entrepreneurship and Diversity in the UK,” Black business owners are less likely to secure funding from traditional financial institutions.

The report reveals that only 39 per cent of Black entrepreneurs receive approval for their loan applications, compared to 67 per cent of White entrepreneurs. Furthermore, when securing loans, Black entrepreneurs often face higher interest rates and less favourable terms. (British Business Bank, 2020).

2 Limited networks

Networks are crucial for business success, providing access to resources, information, and opportunities. However, Black business owners often have limited access to influential networks. This isolation can stem from historical and systemic exclusion from professional and social circles where business relationships are typically formed and nurtured. Consequently, they miss out on opportunities for partnerships, collaborations, and referrals that could significantly boost their business prospects.

The Federation of Small Businesses (FSB) report “Unlocking Opportunity: The Value of ethnic minority businesses to UK Economic Activity and Enterprise” highlights that Black business owners have fewer opportunities to connect with mentors, peers, and potential business partners.

3 Lack of supportive mentors and professional support

Mentorship and professional guidance are vital for any entrepreneur, but Black business owners frequently lack access to these resources.

The scarcity of mentors who understand their unique challenges and can provide culturally relevant advice hinders their ability to navigate the complex business landscape. Furthermore, a dearth of professional support services tailored to their needs exacerbates their struggle to achieve business success.

The insights presented in the “Black British and Proud” report by Lloyds Bank identify and highlight the disparities and barriers faced by Black-Owned Businesses, which aligns with the challenges encountered by Black entrepreneurs in the West Midlands region. Specifically, the report found:

• Black entrepreneurs seeking business advice primarily do so within the Black community, potentially hampering growth and productivity.
• This leads to these businesses turning to their friends (31 per cent), Black business community groups or social media groups (both 29 per cent), rather than banks (12 per cent) for advice and support.

4 Lower net worth and property ownership

Wealth disparities are pronounced in the Black community, with lower net worth and less property ownership compared to other groups.

This economic disadvantage means that Black entrepreneurs often lack the collateral needed to secure loans and investments. Additionally, they struggle to fund their business ventures without substantial personal savings or family wealth, leading to a reliance on often unavailable external financing.

Black households have an average net worth of £24,000, which is significantly lower than the £197,000 average net worth of White British households.

Additionally, the report highlights that only 20 per cent of Black households own their homes, compared to 68 per cent of White British households. This disparity in wealth and property ownership is a result of historical and systemic inequalities that continue to affect the financial stability and economic opportunities available to Black individuals and families in the U.K. (IPPR, 2020).

5 Limited experience in higher employment positions

Professional experience, particularly in higher-level positions, is crucial for acquiring the skills and knowledge necessary for business ownership.

However, Black individuals are underrepresented in senior roles within the corporate sector. This lack of experience limits their understanding of strategic management, business operations, and leadership, putting them at a disadvantage when starting and running their own businesses.

The underrepresentation of Black individuals in senior leadership positions across all sectors in the UK is a pressing issue.

The Parker Review 2022 update indicates that despite some progress, Black professionals remain significantly underrepresented in executive and non-executive roles within major UK companies. Only 3 per cent of FTSE 100 board positions are held by Black directors, and this underrepresentation is echoed in senior leadership roles across various sectors, including finance, technology, and public services.

 6 Consumer rather than producer mindset

Historically, cultural and economic factors have positioned Black individuals more as consumers than producers.

This consumer-oriented mindset can inhibit entrepreneurial aspirations and the development of business acumen. Shifting this perspective is essential for fostering a culture of entrepreneurship within the Black community, encouraging more individuals to create and scale businesses.

The Black Lives Matter & Black Pound Day Consumer Report by Jamii & Translate Culture holds immense value as a critical resource providing invaluable insights into UK-based Black-Owned Businesses' experiences.

This comprehensive study delves into the unique challenges and opportunities encountered by the Black community within the UK’s business landscape, shedding light on their untapped potential to contribute to the economy.

The study reports that it's estimated that the Black British community has a spending power of £300bn, yet only 2 per cent of this is spent within black businesses.

 7 Businesses in non-scalable areas

Black entrepreneurs often start businesses in less scalable sectors, such as small retail or personal services.

These industries typically offer limited growth potential and lower profit margins. Focusing on scalable sectors like technology, manufacturing, or innovative service industries is essential for creating sustainable economic growth and broader community impact.

The Aston University CRÈME report highlights the fact that ethnic minorities in the UK are consistently more entrepreneurial than the population generally, and they are less likely to operate established or mature firms that generate stable income.

The contrast is noticeably stark between White and Black ethnic groups. White business owners are more likely to run established firms over 42 months old than their Black counterparts (67 per cent and 43 per cent, respectively).

8 Discrimination and bias

Black entrepreneurs often face explicit and implicit bias, which can affect their interactions with customers, suppliers, and financiers.

Discrimination can manifest in various forms, from prejudiced attitudes during business transactions to systemic biases in financial institutions. These experiences can be discouraging and hinder the growth of Black-owned businesses.

The UK Government’s Race Disparity Audit found that Black and minority ethnic individuals face significant disparities in employment and business opportunities.

The audit revealed that Black business owners are more likely to report discrimination in accessing finance, contracts, and business support services compared to their White counterparts.

9 Access to information

There is often a gap in access to critical business information and resources that can help Black business owners make informed decisions.

This includes information about market trends, funding opportunities, and regulatory requirements. Without this knowledge, Black entrepreneurs may struggle to compete effectively and navigate the complexities of the business environment.

The Centre for Research in Ethnic Minority Entrepreneurship (CREME) report “The Barriers to BAME Entrepreneurship” highlights that Black and minority ethnic entrepreneurs often lack access to critical business information and resources.

This information gap includes knowledge about market trends, funding opportunities, and regulatory requirements.

10 Cultural barriers

Cultural misunderstandings and stereotypes can create additional hurdles for Black entrepreneurs in the broader business community.

These barriers can affect customer perceptions, employee relations, and partnerships. Overcoming cultural barriers requires promoting diversity and inclusion within the business sector, fostering an environment where all entrepreneurs can thrive.

The Institute of Leadership & Management’s report ‘Inclusion and Diversity in the UK Workplace’ identifies cultural misunderstandings and stereotypes as major challenges for Black business owners. These barriers can lead to miscommunication, reduced trust, and limited business opportunities.

Addressing the challenges faced by our Black business owners requires a multi-faceted approach that includes policy changes, increased access to finance, mentorship programs, and efforts to integrate Black entrepreneurs into broader networks.

By acknowledging and actively working with us at BBC to eliminate these barriers, we can foster a more inclusive and dynamic business environment that benefits not only Black entrepreneurs but the economy as a whole.