The British Business Bank’s fourth Nations and Regions Tracker has found usage of external finance has increased overall across the UK, with 11 out of the 12 nations and regions recording an uptick in use of small business finance.
The report also found that the majority of businesses (61 per cent) viewed current trading conditions as presenting more threats than opportunities, despite Q1 2024 seeing a 7 per cent increase in equity funding relative to Q1 2023.
External finance usage among smaller businesses saw notable growth in 2023, with 46 per cent of businesses now leveraging it, up 10 percentage points from the previous year.
There was also a 10 per cent increase among North West firms to 45 per cent.
The report also shows an increasing reliance on credit card usage. Across all the various finance types available, nearly one in five (17 per cent) UK businesses made use of credit cards followed by bank overdrafts (13 per cent) and leasing and vehicle finance (12 per cent), highlighting the challenges for businesses seeking external finance.
Smaller businesses across the UK showed renewed interest in external finance in 2023, with a growing number using it to seek investments that had previously been delayed. Between 2021 and 2023, fewer than half (44 per cent) across the Nations and regions had identified and made any investments in their business.
And although inflationary pressures have slowly begun to ease, the majority (61 per cent) still viewed current trading conditions as presenting more threats than opportunities and over three quarters (76 per cent) were still feeling the impact of recent increases in costs in 2023.
The tracker found that while the distribution of core debt finance forms such as term loans and overdrafts across UK Nations and regions is less imbalanced than other finance types, location-specific challenges remain.
However, early signs from 2024 suggest a more promising outlook for the small business core debt market. The first half of 2024 saw a 21 per cent increase in the volume of approved loans and overdrafts compared to the first half of 2023, with the South East experiencing the largest uptick.
The UK equity market experienced a decline in the number of announced deals across all Nations and regions in 2023, reflecting ongoing economic challenges.
However, early signs from the first half of 2024 indicate stabilisation, with a positive outlook for the year ahead. In Q1 2024, equity funding for smaller businesses increased by 7 per cent compared to the same period in 2023, suggesting renewed investor confidence.
In the North West, 114 deals were completed during the period, a 31 per cent decline on 2022 and there was a 67 per cent decline in investment value, reflecting the national trend.
Commenting on the report, Mark Gibbons, lead adviser at Boost’s Access to Finance service, said: “The funding market is experiencing a noticeable shift, and we’re seeing several key trends emerging in Lancashire.
“There is an evident increase in the use of external finance, particularly amongst smaller businesses, which mirrors the regional and national trend. Equity activity, on the other hand, is declining here in Lancashire, again consistent with wider trends.
“It’s vital that businesses understand the ever-evolving landscape and therefore it’s crucial that as a funded business support service we have the expertise to help them do this as well as possible.
“This is why Access to Finance has invested in its team in recent months, appointing two new specialist advisers: Warren Lunt an equity expert and Firoza Ismail, who has a deep knowledge of a wide range of business funding options. We now have a team of six experts with decades of experience across all major areas of business growth finance.”
The British Business Bank has continued to deliver significant support to smaller businesses across the UK through its debt and equity finance programmes, with a focus on benefitting firms outside of London.
The Bank’s Nations and Regions Investment Funds and their predecessor regional programmes provided £236 million in equity funding to over 200 companies located outside the capital in 2023, with a particular emphasis on supporting spinouts in regional markets, highlighting its commitment to fostering innovation and growth in the Nations and regions. These funds also invested £152 million in debt finance supporting over 120 companies from across the UK.
In addition, the Regional Angels Programme facilitated £441 million in investments over the same period, further boosting regional equity markets and providing critical support to high-potential businesses outside London.
Louis Taylor, CEO, British Business Bank, said: “While we continue to face a challenging economic environment, it is encouraging to see a renewed appetite for external finance among the business community. This year’s Nations and Regions Tracker captures a mood of cautious optimism throughout the UK, and one which will hopefully see an uplift this year and beyond.”
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