Tougher loan process for ethnic minorities

Entrepreneurs from ethnic minorities face four times as many credit refusals as their white counterparts, new research suggests.

According to a study by Warwick Business School, Black and Bangladeshi owned businesses are the most likely to be refused credit.

The survey found that 36% of black African firms, 29% of Caribbean firms and 20% of Bangladeshi firms had been denied loans compared to 8.2% of white owned businesses.

However, the author of the report Dr Stuart Fraser, said the findings pointed more towards lower levels of ‘creditworthiness’ rather than outright discrimination on the part of lenders.

Dr Fraser said one clear reason for this was the much younger age of the Pakistani, Bangladeshi and black-owned firms compared to white firms.

The research also found that black Caribbean firms in the UK are less likely to apply for loans than white owned businesses due to fears of discriminatory rejection.

“Improvement in information flows between finance providers and businesses about the criteria used to make credit assessments including providing the reasons for rejection would help tackle the misperceptions of discrimination,” said Fraser.

“In particular, finance providers should make it more clear to EMBs that defaulting on a loan or exceeding an overdraft limit could have adverse consequences for future credit.”

© Crimson Business Ltd. 2008