Dr Steve Walker, Chief Executive of Art Business Loans reflects on the role the organisation has play in providing and the challenges many small firms will face in the future.
From inception nearly 25 years ago ART Business Loans (ART) has always served the ethnic minority business community in its long and distinguished career originally in the heart of Birmingham and now serving the wider West Midlands Region.
Access to appropriate finance to start and grow small and medium size businesses has always been a challenge to the part of the sector known as micro enterprises with under 9 employees. At certain times over the years, this was perceived as even more challenging for Ethnic Minority Businesses. (EMBs).
As Micro businesses account for over 80% of the whole stock of UK businesses and when added to small (up to 50 employees) make up 99% of UK businesses you expect challenges to emerge.
ART was established to target gaps in support provided by the banks with loans from £10k to £150k. With an open-door policy to all and with a mission to target underserved areas and communities including EMBs. We are very close to the ground and have an ongoing understanding of the current state of the market.
Recent research (Ethnicity and Bank lending before and during Covid-19. Cowling, Liu, and Conway June 2021) which examined the supply and demand for finance for EMBs has re-confirmed our own experience over many years. The greatest challenges for all businesses, including EMB led, being at early- stage growth and when businesses cannot meet the requirements of the banks in terms of own stake, security, or information.
In previous difficult times- recession fuelled or the banking crisis, the supply of finance especially to small businesses contracted. After the banking crisis there was a movement away from the banks who were and still are by far the largest supplier of finance. Many new alternative providers emerged. However very few of these targeted the micro business sector and provided smaller loans and many have moved to providing much larger debt facilities.
During the period pre- Covid most of the concentration in supporting gaps in access to finance was on growth businesses, equity, and larger amounts even when the public sector intervened nationally or locally.
The Covid pandemic has however seen a different dynamic enter the equation. With unprecedented support from Government, Banks provided with a 100% guarantee were able to provide very cheap loans under the Bounce Back loan scheme. Loan approval rates went up …not much of a surprise as BBLs were provided using a self-certification from customers and were very widely used. With the additional CBILS loan scheme, more loans to small businesses were made available in six months than would have previously made in a year.
Perhaps unsurprisingly the recent research which covered the period pre COVID19 and the first two quarters did indicate that more EMBs were able to obtain bank finance during this period. The 100% guarantee and relaxed lending approaches led to this much required support to enable many businesses to continue which would have failed.
The challenge now and in the critical months ahead will be what will happen as we move away from the earlier schemes. Resources used by BAME businesses within family and friends before Covid are likely to be scarce and we are already seeing a considerable tightening by the banks in the use of the new Government supported Recovery Loan Scheme. This will increase demand on other accredited smaller providers of the scheme such as ART. As businesses have borrowed more and on easier terms the pressure will also be on those businesses to exhibit to lenders that they are able to service both existing and future borrowing.
Somewhat disappointingly#, concentration in the public sector and the banks still focuses on larger businesses and high growth with very little attention being paid to the micro end of the small business market.
This will be essential if we want the currently supported start-ups and early- stage businesses to grow and produce jobs in the future and hopefully support the much vaunted ‘levelling up agenda.‘