The British Business Bank’s fourth Nations and Regions Tracker finds 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 smaller businesses (61%) viewed trading conditions as presenting more threats than opportunities in 2023, which can be partly attributed to the impact of factors such as economic uncertainty and ongoing pressure from recent cost increases. This was most marked in the South West, with 67% of businesses perceiving threats as outweighing opportunities overall, the highest of any Nation or region, although Wales, Northern Ireland and the North East were close behind on 66%. Despite this, more than half of businesses in the South West (53%) had made investments over the preceding three years, which was higher than any other Nation or region of the UK, reflecting a degree of cautious optimism.
Use of external finance rebounds in 2023
External finance usage among smaller businesses saw notable growth in 2023, with 45% of South West businesses leveraging it, up 8 percentage points from the previous year. This was slightly below the national average of 46%, which saw a 10 percentage point year-on-year increase. The report also shows an increasing reliance on credit card usage throughout the UK. Across all the various finance types available, nearly one in five (17%) businesses made use of credit cards followed by bank overdrafts (13%) and leasing, hire purchase and vehicle finance (12%), highlighting the challenges for businesses seeking external finance. Although use of bank loans generally declined among smaller businesses across the UK, it was on a positive trajectory in four Nations and regions, including the South West, where usage marginally rose by 1ppt. This was despite around four in 10 South West businesses (39%) feeling they could not access the finance they needed at a reasonable rate of interest. And nationally, early signs from 2024 suggest a more promising outlook for the small business core debt market. The first half of 2024 saw a 21% increase in the volume of approved loans and overdrafts from the top SME lenders.
Announced equity deals declined, but stabilisation seen in 2024
The UK equity market experienced a decline in the number of announced deals across all Nations and regions in 2023, reflecting ongoing economic challenges. There were 117 announced equity deals in the South West in 2023, down 23% on the year before. This compares to a 25% reduction nationally and a 22% fall in deal numbers outside London. Deal value in the South West fell by 67% to £0.27 billion, compared to a 48% fall outside London. 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% nationally compared to the same period in 2023, suggesting renewed investor confidence. The South West saw £117m worth of deals in the first half of 2024, which was down 5% on the year, before indicating a sharp slowdown in the year-on-year decline.
British Business Bank driving impact across the UK
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 geographically-focused funds, including the £200m South West Investment Fund launched last year, provided £236 million in equity funding to over 200 companies located outside the capital, with a particular emphasis on supporting spinouts in regional markets, highlighting its commitment to fostering innovation and growth in the Nations and regions. In addition, the Regional Angels Programme facilitated £441 million in investments over the same financial year, further boosting regional equity markets and providing critical support to high-potential businesses outside London. September also saw the launch of a new Cornwall Angel Network in the South West that will be hosted by Falmouth University and has the support of the British Business Bank and Cornwall Chamber of Commerce.
Steve Conibear, UK Network Director, South West, for the British Business Bank, said: “Despite the challenging economic environment, it’s encouraging to see businesses in the South West increasingly turning to external finance, reflecting a sense of cautious optimism. The region’s businesses have shown resilience, with a higher percentage making investments over the last three years than anywhere else in the UK.
“The British Business Bank remains committed to supporting the South West’s dynamic business community by providing access to the finance they need, helping unlock their potential and drive long-term growth across the region.”
