The financing of disadvantaged entrepreneurs

Abstract

Purpose This paper asks whether enterprise programmes are overcoming the finance gap faced by their disadvantaged participants. Specifically, the paper seeks to assessthe level of finance invested by participants on a leading UK enterprise programme, the New Entrepreneur Scholarships (NES). Design/methodology/approach The paper draws on a postal and e‐survey of participants on a leading UK enterprise programme, reporting on 472 respondents. Three capital structure variables (personal investment, external private investment and grants) are employed to analyse the importance of various types of funding in NES businesses. These figures are compared with published data about use of different types of finance, including principal sources of funding, in UK start‐ups. Descriptive statistics of perceptions of under‐capitalisation, and needs for additional funding, are also reported. Findings NES Scholars make significantly lower start‐up investment than is typical in UK small businesses, particularly in terms of personal finance. Finance provided by the programme is important but does not compensate for poor access to personal and loan investment. Perhaps as a consequence, almost half of the Scholars were under‐capitalised. Practical implications Implications for policy are discussed at length. In particular, practical options for addressing the under‐capitalisation of businesses started under enterprise programmes are analysed, including increasing and targeting grant finance, providing soft‐loans, improving access to existing sources of public funding for small businesses, easing access to private finance, providing more support for the self‐employed through the welfare and tax credit systems and paying childcare subsidies. Originality/value The paper presents novel analysis of the capital structure of businesses started under an enterprise programme and employs this to explore the critical question of whether – and in what ways – these firms are under‐capitalised. It also presents new analysis of the policy options available for improving finance to disadvantaged groups. It fills gaps in the literatures relating to small business finance and small business and social inclusion.

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