Monday, August 21, 2006

Women Entrepreneurs in the West Midlands - research briefing

Entrepreneurship in the West Midlands – Exploring typologies, identifying evidence for policy making

Lynn Martin, University of Central England
Izzy Warren-Smith, Harper Adams University College
Stephen Roper, Aston University
Jonathan Scott, Aston University;.

(Recently presented to a workshop "Research in female entrepreneurship: Impacts on learning to develop tomorrow's women in business", New Technology Institute (NTI), Birmingham, 26th June 2006, a workshop opened by Erika Watson, CEO, PROWESS, )

Contact author: Dr Lynn M Martin, Director for Innovation and Entrepreneurship
University of Central England, Galton Building, Perry Barr, Birmingham B42 2SU
Tel: +44 121 331 7248. E-mail: -

Research by the authors resulted in a paper exploring the processes in developing an evidence base derived from Companies House data to explore entrepreneurship in the West Midlands region of the United Kingdom. In addition to providing new insights for policymakers in the region, the results of the study will be used to derive new learning materials for enterprise education programmes at regional universities, supported by the TE3 programme, via the Mercia Institute of Enterprise to integrate technology into the teaching and learning of enterprise and entrepreneurship. (

The database of 133, 988 firms was analysed in terms of gender, geographic location, size and business sector. From this data analysis, key indicators emerged as to where firms were located, relative sizing and sector. This was further refined to explore the characteristics of female-run firms. Where difficulties arose as to classifications given the optional nature of some of this entry by respondents, measures were taken including review against other databases. For gender, for instance, unclassified entries were matched against lists of first names by gender (such as then reviewed by students from different ethnic cultural backgrounds. The next stage will be to carry out qualitative research including in-depth case study data collection to support the emerging typology of urban/rural and of male/female firms

From the data review, key characteristics emerged related to location, size and business sector, of enterprises in the West Midlands, with emphasis on the number of newer firms in the region. When these characteristics were related to gender, a new descriptive classification emerged of types of female run firms, which again included location, size and sector. Final results are anticipated in Autumn 2005 and Spring 2006 used again with other groups after further refinement.

This study has emphasised the lack of basic data available on companies providing insights into key characteristics to support strong regional initiatives, particularly related to urban/rural issues and to gender

The research provides new insights not only for those developing regional policy but also for those teaching graduate education.

Acknowledgements: This paper is derived from research carried out as part of a joint project between Aston University, Harper Adams and the University of Central England, supported by the TE3 (Technology Enhanced Education) programme led by Dr Kelly Smith at Birmingham University. The TE3 programme supports a number of projects in the West Midlands to encourage integration of technology into the teaching of enterprise and entrepreneurship at regional universities. In this case the research will develop more robust learning materials relating to regional activities than has hitherto been possible given the low levels of data available for the West Midlands entrepreneurship base.

Friday, August 18, 2006

Enterprise and Entrepreneurship in Higher Education - National Mapping Exercise

Professor Paul Hannon (National Council for Graduate Entrepreneurship - NCGE) and Dr Jonathan Scott led a team of researchers from Aston University and the University of Central England (UCE) : Srikanth Reddy, Cindy Millman and Priyanka Nayar who collected and analysed the data, for a national mapping exercise of enterprise and entrepreneurship in higher education - see

The website reports that:

Over 94% of university institutions (123/131) responded to the NCGE's mapping of Enterprise and Entrepreneurship across higher education in England. The project was undertaken following agreement with the Enterprise and Skills Directors of the nine Regional Development Agencies (RDAs) to provide a landscape of the current provision of enterprise and entrepreneurship.

Each institution was provided with their own detailed template. A copy of the template can be viewed at

A regional list of the institutions who participated can be viewed here.

The resulting database is capable of being updated and will provide a live searchable database for enterprise and entrepreneurship provision in higher education institutions in England. There is also an intent to widen the database to include Northern Ireland, Scotland and Wales.

How To Read the Reports
There is one national report and nine regional reports, broken down into three sections:

Current and Planned Enterprise and Entrepreneurship Provision
Extra Curricular Activity
Institutional Characteristics

The national report compares the regional positions against the national average together with a commentary. The nine regional reports provide a more detailed analysis with a regional commentary. All reports can be downloaded and printed.

The reports are indicative; care should be taken when drawing firm conclusions. There are wide variations in the regions, for example the North East has 5 universities whereas London has 41. London has 8 of the 9 'micro' institutions (those with less than 1,000 students) who provide very little in the way of enterprise activity.

Because of these variations and the substantial amount of data gathered a more detailed national report is also being made available.

The barriers faced by SMEs in raising finance from banks

[This is a draft policy paper and, as such, comments will be welcomed by the authors. Please email The figures are not included here but the most recent version of the paper is available on request.]

The barriers faced by SMEs in raising finance from banks


David Irwin, Partner
Irwin Grayson Associates

Unit 3, Hindley Hall, Stocksfield, Northumberland, NE43 7RYTel: +44 20 7193 9984 Email: david@irwin.orgWebsite:

Dr Jonathan Scott, Research Fellow, Aston University

Objectives: This paper aims to explore some of the barriers faced by entrepreneurs in raising bank finance to support and grow their businesses, specifically exploring the extent to which owner-managers’ personal characteristics (ethnicity, gender and education) impact upon their ability to access finance for their enterprise.

Prior evidence: There has in the literature been some attempt to consider personal characteristics and, in particular, those of gender and ethnicity. The literature review in the paper shows that previous research indicates constraints in accessing finance for females, ethnic minorities and the less well educated. This paper builds upon this research and reveals some new insights.

Approach: The approach adopted for the research is a telephone survey conducted by the Barclays small business research team on behalf of the authors. These data are quantitative in nature and involve a large sample of 400 SMEs with specific questions analysed by gender, ethnicity and education level. The approach adopted is robust and empirically sound and is a long established research methodology.

Results: We find that there are key differences by personal characteristics in terms of the specific barriers faced by SMEs in seeking bank finance. The paper explores the implications of these differences. These are final results from a large-scale survey, and suggest opportunities for further research which could be achieved by interviewing some firms face-to-face to discuss their experiences and the impact of personal characteristics on access to finance.

Implications: The study is an important piece of research given the critical need of policy-makers to understand differentials between different types of entrepreneurs. It is brings new insights into its field – access to finance – and with respect especially to marginalised groups.

Value: The paper adopts a different approach with a large sample and robust analysis to explore a critical need-to-know area in a new way – both for policy-makers and academics in the field of SME finance.

Keywords: finance, SMEs, banks, gender, ethnicity, education

1. Introduction

The paper follows on from research conducted by the authors in the North East of England and presented at last year’s ISBE conference and since then re-worked for publication (Irwin and Scott 2005, 2006). In that paper, the authors investigated the importance of micro-finance in supporting small and medium-sized enterprises. We found that there had been little coherent effort to measure its demand and supply and the size of the gap. Although finance from family and friends is particularly important for young people who want to start in business, micro-finance is also essential - not least in levering finance from commercial sources. There are a significant number of businesses, and a far higher proportion amongst young people, who would be unable to start in business without being able to secure loan finance from a micro-finance institution (MFI) so it would appear that MFIs are indeed filling a gap. The survey examined issues around variations in running costs, issues around sustainability, performance measurements and benchmarking, promotion and advice and support.

In parallel, the authors began to investigate the issue of bank lending to SMEs. It appeared from the research for our first paper that there were significant barriers experienced by some groups of entrepreneurs in accessing bank finance and the literature seems to confirm this observation. One consequence of these barriers was that some groups of entrepreneurs were more reliant on other sources, such as MFIs – due to some form of discrimination by banks either because their proposition was not considered ‘bankable’ or because of their personal characteristics, which we will bear in mind when drawing conclusions. This paper aims to explore whether entrepreneurs’ personal characteristics (ethnicity, gender and education) introduce additional barriers that impact on their ability to access finance. This research has been made possible by Barclays Bank small business research team who undertook a telephone survey of 400 SMEs on our behalf. We have undertaken the analysis which has revealed some important findings.

The remainder of the paper is organised as follows. First, we present a literature review on access to finance and barriers to obtaining finance with specific reference to banks. Second, we outline the methodology and approach adopted for the primary research. Third, we consider the findings from the research. Fourth, we draw conclusions and make recommendations.

2. Literature review

2.1 Bank finance in context

There has, in the literature, been some attempt to consider access to finance in relation to personal characteristics and, in particular, those of gender and ethnicity. Below we review the literature on bank finance and particularly barriers to accessing such finance, where possible by personal characteristics. Overall, the literature review shows that previous research indicates constraints in accessing finance for females, ethnic minorities and the less well educated. This paper builds upon this research and reveals some new insights.

Cosh and Hughes (2003) found that loans from banks provide the funding for around two thirds of UK businesses and the largest source for over 25 per cent of firms. By the end of 2004, term lending by banks had grown to nearly £35bn (16% growth in 2004) and overdraft lending had grown to nearly £10bn (9% growth) (British Bankers’ Association 2004). The Government’s Policy Action Team (PAT 14) articulated the difficulty faced by some businesses in accessing bank finance – due primarily to their age, experience, track record or business structure. However, access to finance is quickly over-shadowed by other problems when businesses actually start up, with finance cited as a problem by fewer than two per cent of respondents to the SBRTeam’s quarterly survey. Fraser (2005) reported that some 2.9m SMEs (80%) have used external finance in the last three years and that the main sources of finance for start ups are personal savings (65%), bank loan (10%) and friends/family loan (6%), which is considerably different from Cosh and Hughes. He also found that approximately 900,000 businesses (24%) use term loans and that obtaining finance is reported as a major problem at start up by some 10 per cent of businesses. The problem of accessing start up finance is resounding.

More generalised literature includes articles such as those considering lending by ‘de novo’ banks in comparison with incumbent banks in 1987-1994 (Goldberg and White 1998), on relationships between SMEs and banks (Meyer 1998; Jones 2001; Strahan and Weston 1998) and with specific consideration of benefits and costs, including barriers (Bornheim and Herbeck 1998). However, it is also critical to understand the decision-making process of both banks and entrepreneurs in the lending process and the way in which distortions caused by the impact of entrepreneurs’ personal characteristics could lead to discrimination. Kotey (1999) is a helpful study that reminds us that growth is constrained and even failure can be caused by financing constraints, and that there are both supply and demand side factors. On the supply side, it is noted that banks are less likely to lend long-term to SMEs due to risk (which is in itself caused by SMEs "lack[ing] a track record of performance on the basis of which their credit rating could be assessed") and cost ("administrative costs, potential interest income and to the risk of default") and on account of collateral unavailability. The demand side, Kotey argues, is that many entrepreneurs do not wish to use long-term debt finance. However, it is clear that whilst this may be true for some, many entrepreneurs are refused finance by banks.

Lane and Quack (1999), taking a sociological approach, cannot be accused of ducking an important issue in their comparative study of UK and German SMEs’ bank lending and their entrepreneurs’ attitudes towards risk. It is this issue of risk which influences both entrepreneurs and banks in the deal-making process, in that entrepreneurs judge the level of risk with which they are comfortable; whilst banks assess how risky the entrepreneur is as a lending proposition. Our study will therefore bear in mind the issue of risk given that certain personal characteristics of SMEs may make them more risk-averse or may lead banks to consider them more risky borrowers. Chandler and Hanks (1998) note that: "there is some feeling among scholars that competent founders will find a way of coming up with necessary resources and capital". It is worth noting, however, that academics have never had to raise money and do not really understand what it is like to be an entrepreneur trying to convince a funder to support a proposition. In developing this theme Chandler and Hanks investigate factors determining capital requirements at start up and factors influencing the sources of funding (i.e. own resources or external e.g. banks).

Howorth (2001) investigated the pecking order, although the theory emerged in other literature: entrepreneurs tend to seek finance first from their own resources, and friends and families, and then from other sources such as banks. Indeed, the money from family and friends is often essential (and often regarded as quasi-equity by the banks) to unlock support from commercial institutions. Research by Hamilton and Fox (1998) provides insight into the financing preferences of entrepreneurs and: "support the view that the financing decisions of small firm owners are based on a demand-side pecking order of finance types. The resulting financial structures reflect a desire to minimise intrusion into the firms and are not entirely the consequence of persistent deficiencies in the provision of finance to small firms." Thus the issue of entrepreneurs desiring maintenance of the control of their business is also a highly relevant consideration when thinking about barriers to access to bank finance for entrepreneurs. We deliberately avoided asking about how much had been raised from elsewhere before approaching the banks – we can take as a given that there is a ‘pecking order’ and we are specifically interested in barriers to access to bank finance.

Winker (1999) examined cause and effects of finance constraints and found these to be influenced by firm age and size, but this is rather different from personal characteristics of entrepreneurs. Whilst useful, a firm characteristics study does not provide the sort of insights into personal characteristics that we seek. Some indication, though, is provided by Cressy and Toivanen (2001) who say that, "better borrowers get larger loans and lower interest rates; collateral provision and loan size reduce the interest rate paid … the bank is shown to use qualitative as well as quantitative information in the structuring of loan contracts to small businesses." The influence of personal characteristics, as well as the type and size of firm, upon whether a borrower is perceived as ‘better’ is undoubtable. We now examine some of these.

2.2 Ethnic minority entrepreneurs

The most comprehensive review of ethnic minority businesses (EMBs) is a report by Ram and Smallbone (2001) which recognises that the finance issue is crucially important. The report reviews the literature on access to finance for EMBs (pp15-17) and emphasises that previous research showed that ethnic minorities were experiencing problems with access to finance especially during the start-up phase (Bank of England 1999; Ram and Deakins 1996). In fact, they show that there are considerably more difficulties than experienced by white entrepreneurs. These problems are shown by various studies to be more acute in particular groups, e.g. amongst African Caribbeans and Bangladeshis although there is a strong influence of the business sector in which particular ethnic groups concentrate (Curran and Blackburn 1993).

Research on access to finance by ethnic minorities includes a report by Smallbone et al (2001), which found that: "as a group, EMBs are not disadvantaged in terms of start-up capital from banks and other formal sources … However, more detailed analysis shows that whilst Chinese owned businesses demonstrated a significantly higher propensity to access start-up finance than white owned firms, the proportion of ACBs [African Caribbean businesses] to do so was below that of the white control group and significantly below with respect to bank finance solely."
In addition, the study also found that EMBs were much more reliant upon informal sources of start-up finance. A study by Ram et al (2003) finds that EMBs trying to ‘break out’ of traditional co-ethnic sectors face "discrimination even in the case of entrepreneurs with seemingly impressive track records and personal resource endowments."

Basu (1998) compared bank finance to informal sources, such as from own resources or families in start-ups by British Asians and he found that: "Although bank finance was valuable in preventing undercapitalised ventures, rapidly growing Asian businesses did not rely on bank finance either at start-up or for expansion. This may be attributed to the short-term perspective of banks." In addition, Basu notes that fast-growth BME businesses had used personal savings when they started their firm and adds that: "Asian entrepreneurs aspiring to grow need to advance beyond the traditional reliance on informal support networks for finance and labour." Finally, the Bank of England (1999) in its report into the Financing of Ethnic Minority Firms in the UK made some fascinating findings.

2.3 Women entrepreneurs

There is considerable evidence on the baseline situation, trends and good practice in women’s entrepreneurship in the UK (Carter et al 2001; Warren-Smith and Jackson 2004) and in the US (Centre for Women’s Business Research 2004). Although there is evidence that is cited in the report by Carter et al (2001) in relation to personal characteristics – social background and educational levels – of women entrepreneurs (e.g. Dolinsky et al 1993; Hisrich and Brush 1984; Holmquist and Sundin 1990), there appears to have been little recent exploration of this topic. However, the Barclays’ telephone survey will not only provide insight into women entrepreneur’s constraints in bank lending but also more specifically on those of women entrepreneurs with different education levels.

There have been a number of attempts to investigate access to finance for women, or more specifically comparisons by gender. In a few cases these studies have been empirical but yet there is still a gap in the literature on constraints on women accessing bank finance. A number of helpful overviews, though, of finance of SMEs by gender of the entrepreneurs were produced towards the end of the 1990s (Read 1998; Carter and Rosa 1998) or in terms of venture capital (Green et al 2001). In particular, Carter and Rosa argued that, although finance constraints for female entrepreneurs has been recurrent in policy debates within literature, no consensus has been reached on the question of whether disadvantages exist for female entrepreneurs accessing finance due to differing methodologies. However, they utilised a survey of 600 firms, equally split by gender, and found that there are: "quantifiable gender differences in certain areas of business financing, although intra-sectoral similarities demonstrate that gender is only one of a number of variables that affect the financing process." The complex influences of other variables, such as education, is an important factor that we must take into account before drawing conclusions from the results of the Barclays’ telephone survey.

Another important issue is whether women entrepreneurs are discriminated against because of the nature of the banking relationship, i.e. the way in which entrepreneurs interact with their bank. Verheul and Thurik (2001) investigated differences between men and women financing small firms, and compare direct ‘discriminatory effects’ as well as indirect effects (type of business, management and experience) between males and females. These authors drew upon 2,000 entrepreneurial start-ups in 1994 in Holland (25% of which were female) and their findings included that females had less capital when starting the business but that there was no difference in the type of capital – and that "the proportion of equity and debt capital (bank loans) in the businesses of female entrepreneurs is the same as in those of their male counterparts." Ennew and McKechnie (1998) compare the banking relationship, as mentioned earlier in this literature review, between male and female entrepreneurs and suggests that, "discrimination occurs amongst lenders at a more unconscious level", and then considers the relationship between banks and female entrepreneurs with respect to terms and conditions, and quality of service. Another study by Orban (2001) examines the issue of discrimination against female entrepreneurs in France. Other research, however, finds that women have a lower propensity to access external financing but the author argues that this is not due to discrimination by lenders, but "that women-owned firms paid higher interest rates than men for their most recent loans" (Coleman 2000).

3. Methodology and approach

During the course of the authors’ earlier research, a number of critical ‘need-to-know’ issues (in relation to barriers faced by SMEs in raising finance from banks) were identified that merited further investigation. To address this knowledge gap, the authors articulated these needs in terms of research questions, which were codified and incorporated into a telephone survey. Principally these were to consider the differences by gender, ethnic group and education level of difficulties raising finance, sources used to fund business and the impact of difficulties raising finance upon the business.

The Barclays small business research team conducted a survey of SMEs which is performed
with rigorous and robust sampling, administration etc standards. However, the telephone survey is best understood – and perhaps even critiqued – in that it is based upon a sample of small firms that are customers of Barclays bank, i.e. they have a business account which does not equate to having accessed financed (term loans etc) from the bank. Businesses are likely to have some formalised banking relationship, so we do not believe that the sample is therefore skewed to the point of unrepresentativeness.

The authors were provided with an anonymised (hence resolving any ethical issues of confidentiality or disclosure) SPSS data set containing the responses from all 400 surveyed firms. They then analysed the data using descriptive statistics and cross-tabulations, which were converted into graphs, in order to produce the results section of the study. The sample was large and varied enough to provide solid evidence of differences between entrepreneurs’ experience of accessing finance from banks based upon their personal characteristics. The analysis was structured around each theme identified above, and was based upon a review of the literature. Commentary on the results was written and finally conclusions and recommendations were identified and articulated.

4. Results

4.1 Characteristics

The 400 respondents interviewed comprise 76 per cent male and 26 per cent female. Some 52 per cent are white with 7 per cent Asian or Asian British, 3 per cent Black or Black British, and 22 per cent ‘other’ (including, for example, Chinese). Some 38 per cent were already trading when they opened their account with Barclays, whilst 62 per cent were still preparing (i.e. were in pre-start mode). For 68 per cent of those whose business was already trading, this was their first business account. As figure 1 shows, of the firms who were currently trading, those trading less than 6 months are the predominant group.

[Figure 1: Length of time trading before opening account with Barclays (%)]

The cost of start up for the largest group of these firms was over £20,000, but generally start up costs were less than £5,000, as shown in figure 2. In figure 3, we show the sources of finance – with personal savings at 70 per cent being the resounding choice for finance followed by family and friends and remortgaging of the entrepreneur’s home. As we go down the ‘pecking order’, we see familiar sources such as loans, credit cards, HP/leasing. There were no VC or business angel backed businesses in the sample population.

[Figure 2: Cost of start up]

[Figure 3: Sources of funds for start up]

4.2 Financing constraints

The following analysis presents results from the telephone survey first of all for all firms, for firms that were in preparation when they opened their bank account, and for firms that had already started their business. Whilst there has been much literature on financial constraints for all businesses and more specifically in regard to variations between gender and ethnicity, there is limited empirical evidence. Most notably, though, is the booster sample of ethnic minority firms of the UK Survey of SME Finances (Fraser 2006). It has been identified in the survey that 16 per cent of respondents to the telephone survey experienced difficulties in raising finance to start their business.

It seems that males who have successfully raised finance are more likely to report financial difficulties (18%) than females (12%).

[Figure 4: Financing constraints by gender]

Just 13 per cent of white respondents reported finance constraints compared to 22 per cent of Asians, 50 per cent of blacks, and 21 per cent within the other ethnicity group (including Chinese and various other ethnicities) which shows clearly that there are major difficulties experienced by ethnic minorities. This appears to confirm the conclusions from the literature.

[Figure 5: Financing constraints by ethnicity]

The impact of education is also fairly conclusive and indicates that only 8 per cent of graduates in the survey experienced difficulties raising finance, compared to 19 per cent of those educated to GCSE/O-level, 21 per cent of those with professional, trade or vocational qualifications and a surprisingly high 23 per cent of entrepreneurs educated to A-level. Not having a degree makes some respondents twice as likely, or in some cases almost three times as likely, to experience difficulties in raising finance to start their business.

[Figure 6: Financing constraints by education]

When we consider variations in financing constraints by when the bank account was opened (as part of preparations or when the business was already started), we discover that across the board difficulties intensify for the firms that were already trading when they opened their bank account, perhaps suggesting that the reason for moving bank was to improve access to loan finance. Although men are twice as likely to have financing constraints in the former category, women are as likely as men to have financing constraints if they opened their bank account when their business had already started. Similarly, the finance constraints intensify for Asian and black people in the ‘already started’ category (up from 18% to 30% and 33% to 75% respectively) and similarly for ‘other’ ethnicities (12% to 38%). By education we find that graduates have the lowest financing constraints at 2% for those starting their bank account as part of their preparations but this shoots up to 19% if they had already started their business at this point – the other educational levels tend to double in difficulty.

4.3 Sources of finance

We reviewed variations in sources of finance to start up a business. We have more detailed data, but we only report here on responses from all firms. It should be noted that there are variations but we do not seek to explore these here.

Own personal savings (70% of all firms and for white respondents) is the primary source of finance for entrepreneurs but is slightly higher for Asians (74%). Women at 72 per cent also have a slightly higher uptake of this source of finance than men, and it is slightly lower for graduates (88%) and for those educated to professional/trade level (86%). All in all, these variations account for less than 5 per cent in each case and are not significantly different.
Redundancy money (5% average) is twice as likely for men (6%) than women (3%), perhaps because of the nature of men’s work and higher rates of redundancy in male-oriented occupations. None of the Asian respondents used this source, although 10 per cent of black entrepreneurs in the survey did. Those with professional/trade qualifications (7%) or educated to A-level (8%) were slightly higher than graduates (6%) to use redundancy money to finance the start up of a business but these differences are minimal.

Men (10%) were twice as likely as women (5%) to remortgage their home in order to finance the start up of their business, perhaps reflecting men’s ownership of such assets and their higher propensity to risk. Black entrepreneurs at 20 per cent were double the average (despite literature suggesting that black people had lower levels of home ownership), whilst A-level educated entrepreneurs were also twice as likely.

Family and friends (12%) was roughly equal between genders but was at 37% for Asians, reflecting findings in the literature, and considerable anecdotal evidence, that Asians rely upon family sources of finance. Only 4 per cent of graduates and 3 per cent of professional/trade qualified entrepreneurs sought finance from family and friends – perhaps suggesting higher personal income – compared to 21 per cent of those educated to A-level and 14 per cent to GCSE/O-level.

Bank loans (7% business bank loans, 8% personal bank loans and 13% overall) showed males and females level pegging on business bank loans, but 7 per cent men and 4 per cent of women used personal bank loans. Asians and blacks, at 11 per cent and 10 per cent respectively, were more likely to use business bank loans; however, only 7 per cent of Asians but 20 per cent of blacks used personal bank loans. Education level did not vary much, except for 4 per cent of graduates using business bank loans compared to 10 per cent of those with professional or trade qualifications.

Notably, business credit cards were used by 2 per cent of respondents but 3 per cent of males and 1 per cent of females compared to 7 per cent for personal credit cards comprising 6 per cent of men and 8 per cent of women. Therefore, women were more likely to use personal credit cards than business credit cards which were themselves more favoured by men. Asians at 4 per cent were more likely to use business credit cards than whites (2%) but were less likely to use personal credit cards (4% compared to 7% for whites). However, 20 per cent of black entrepreneurs relied upon personal credit cards. Variations by education were again limited.

[Figure 7: Sources of finance by gender]

[Figure 8: Sources of finance by ethnicity]

[Figure 9: Sources of finance by education]

4.4 Impact of difficulty raising finance

Some 65 respondents (16%) had experienced difficulty raising finance. In the questionnaire, we asked respondents to describe the impact arising from the difficulties experienced in raising finance. In other words, of those who experienced finance constraints, what was the impact upon their business’ development? Respondents were able to indicate any number of these impacts and not just one main impact. These impacts included having ‘less funds than anticipated at start up’ (55% of the 65), the need to scale back plans (38%) and having to seek alternative sources of finance. Figures 10, 11 and 12 illustrate these impacts – as a percentage of all firms.

[Figure 10: Impact by gender]

[Figure 11: Impact by ethnicity]

[Figure 12: Impact by education]

5. Conclusions and recommendations

This research demonstrates that there are considerable differences in the ease of raising finance determined by gender, ethnicity and educational level.

Clearly this survey, which has only covered entrepreneurs who have successfully started and
now have a business banking relationship, does not capture the problems faced by people who are unable to raise the finance needed and never actually start up. However, the responses appear to suggest that, perhaps contrary to the traditional view, men have more difficulty than women in raising the finance that they need.

For ethnicity the position is more clear cut: it appears that ethnic grouping does have an impact, with black people finding it the hardest to raise finance.

Not surprisingly, educational achievement also makes a difference: those with the highest level of education experience the least difficulty.

Gender appears to make little difference to the choice of finance source utilised – most settle for personal savings, but there is little difference across each source. Ethnicity makes a difference with black people far more likely to remortgage their home, use personal bank loans and use personal credit cards (all perhaps suggesting a willingness to accept a high level of personal risk or else a total frustration with their ability to raise commercial finance coupled with a determination nevertheless to start up) and Asians far more likely to tap family sources.

Education appears to make little difference, except that those educated (only) to A levels seem more likely to use friends and family and to remortgage their home.

Of those experiencing difficulties, most suffered some impact – in many cases, people started with less than anticipated 9and presumably, therefore, less than they really needed). This could be dangerous for many businesses, potentially setting them off on the worng foot, and explaining why so many then needed additional finance in the first few months.

The research appears to suggest that personal characteristics do make a difference to the ability of entrepreneurs to raise finance, though this research has only begun to touch on the topic and much remains to be done. For example, this research did not look at the ‘investment readiness’ of propositions. It would be interesting, now, to work with the bank on a review of business plans being submitted to explore whether different groups are better or worse at making the case for bank support. It would also be interesting to look at plans submitted by prospective entrepreneurs who have had support from a business support organisation to see what
difference they make.

It is difficult, too, to make recommendations for policy makers based on one piece of research. However, we are concerned that the majority of businesses are starting up with (only) personal savings and believe that many people with sound business ideas are giving up simply because of the difficulties of raising the finance. We are conscious that the level of resource available through MFIs is very small compared to bank lending to SMEs and we would recommend that more support is made available through MFIs and other non-bank lending routes.


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