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Use of external finance across the UK showing signs of recovery after a decline in 2022

Press release 12 October 2023

  • 34% of smaller businesses were using external finance in late 2022, a decline from previous quarters
  • Nations and regions outside of London continue to represent only around 50% of UK equity deals and 45% of investment value
  • Academic spinouts make a large contribution to equity activity in 33 innovation-led clusters
  • Smaller businesses have lower appetite for external finance
  • Smaller businesses in coastal towns have even lower appetite for external finance but have an above average concentration of net zero-related equity deals
  • British Business Bank’s Nations and Regions Investment Funds to drive access to finance across UK

The British Business Bank’s third annual Nations and Regions Tracker, published today, finds the use of external finance among smaller businesses is showing signs of recovery in early 2023, after a decline in most UK Nations and regions in 2022.

Use of external finance declined in 2022, but was picking up again in the first half of 2023

In Q4 2022, 34% of small businesses were utilising external finance – a decline of seven percentage points from Q4 2021 and 10 percentage points from the same period in 2020 – with the largest declines in 2022 being seen in grants (6 percentage points) and bank loans (5 percentage points).

Throughout 2022, 36% of smaller businesses sought external financial support with the East of England  recording the highest use of external finance (41%) and the South East and East Midlands reporting the lowest share(34%). The first half of 2023 has however seen some encouraging signs of recovery, with levels of external finance returning to 2021 levels (43%).

The Nations and Regions Tracker 2023 also found that in 2022, the combined Nations and regions outside of London recorded their first year-on-year decline in the number of equity deals since Beauhurst’s data collection began in 2011 (-10%), with the total investment value in these areas also falling (-11%). Only the South West, Yorkshire and The Humber, and Wales saw an increase in deal numbers compared to 2021. Despite this, there were early signs in 2023 indicating the decline in equity finance deals is beginning to ease, with asset finance remaining well spread across the UK Nations and regions, based on British Business Bank data.

Academic spinouts make a large contribution to equity activity in 33 innovation-led clusters

The Nations and Regions Tracker identified 33 innovation-led clusters covering 196 local authority districts across the UK, with each cluster marking a key driver of growth and technological progress in advanced economies. These clusters represent 93% of technology/IP related equity deals and 96% of total equity investment value from 2011 to Q2 2023.

The UK’s top innovation clusters (ordered by number of deals) outside the golden triangle of London, Oxford and Cambridge are:

  • Edinburgh-Fife-Mid and West Lothian (475 deals, investment value: £0.7bn)
  • Greater Manchester (342 deals, investment value: £1.1bn)
  • Greater Glasgow (257 deals, investment value: £0.4bn)
  • Bristol and Bath (219 deals, investment value: £0.9bn)
  • Newcastle upon-Tyne-Gateshead-Sunderland-Tyneside (179 deals, investment value: £0.3bn)

University spinouts play a crucial role in supporting emerging innovation-led clusters. Academic spinouts make up 23% of Technology/IP-related deals across these clusters between 2011 and the second quarter (Q2) of 2023, but their share of deal activity is even greater in a variety of innovative sectors such as  materials technology, where they are responsible for 53% of deals;  nanotechnology (63%); life sciences (50%); medical technology (41%); and hardware (27%).

While their large contribution to the success of clusters in the golden triangle (encompassing Cambridge, London and Oxford) is well known, it is as substantial in clusters located elsewhere in the UK. These include, among others. Greater Glasgow and Aberdeen, where spinouts represent 47% and 46% of deals; Swansea (45%); Belfast (37%); Coventry & Warwickshire (34%).

Smaller businesses in coastal towns have lower appetite for external finance but have an above average concentration of net zero-related equity deals

When compared to the UK average, smaller businesses in coastal towns say they are less likely to be happy using external finance to grow (26%) compared to the UK average (31%), with a higher share (82%) self-describing as happy non-seekers of finance (v.77%). This is linked to a lower propensity by these businesses to pursue ambitious investment and innovation plans. For example, in 2022 only 34% agreed that they had a long term ambition to be a significantly bigger business, a much lower share than their counterparts in the rest of the UK (40%), and only 41% agreed that they were prepared to take risks to be successful (v. 46%).

This lower appetite for growth-oriented  finance is also reflected in coastal towns’ share of equity: despite accounting for around 12% of the UK population, they made up only around 4% (889) of UK equity deals and 2% of the investment value (£2.2 bn) between 2011 and Q2 2023.

In contrast, coastal towns have a higher proportion of equity deals that relate to net zero sectors (14%), reaching double the share seen in the UK as a whole (7%) between 2011 and Q2 2023. The importance of net zero-related sectors in coastal towns’ equity investment ecosystem is a sign that many local smaller businesses are already trying to capitalise on these opportunities.

We are seeing promising signs that the use of external finance among smaller businesses is recovering after a decline in 2022. Unsurprisingly, our world-class universities continue to play a crucial role in this, supporting emerging innovation-led clusters across the UK.

This year’s Nations and Regions Tracker shows that smaller businesses in coastal towns face several challenges that impact their success, including low productivity and a reduced appetite for external finance. However, coastal towns experience greater than average specialisation in net-zero sectors, evidence that improved access to external finance will enable smaller businesses in coastal towns to expand and further develop innovative climate solutions. We need to ensure that more is done to support these areas, which will in turn help reinvigorate smaller businesses’ resilience and growth ambitions.

Louis Taylor Chief Executive Officer, British Business Bank

British Business Bank driving access to finance across UK

The British Business Bank is driving sustainable growth and backing innovation across the UK by ensuring smaller businesses have access to capital. The British Business Bank is launching six new Nations and Regions Investment Funds which will deliver £1.6 billion of finance in the South West, Scotland, Northern Ireland, Wales, North of England and Midlands.

When deployed, the new Nations and Regions Investment Funds will further strengthen the Bank’s ability to support smaller businesses in less-developed ecosystems access the finance they need to grow, working in synergy with other UK-wide Bank programmes.

Further Information

If you are a journalist and have a media enquiry, please contact mediaenquiries@british-business-bank.co.uk.

Notes to editors

About the British Business Bank

The British Business Bank is the UK government’s economic development bank. Established in November 2014, its mission is to drive sustainable growth and prosperity across the UK and to enable the transition to a net zero economy, by improving access to finance for smaller businesses. Its remit is to design, deliver and efficiently manage UK-wide smaller business access to finance programmes for the UK government.

The British Business Bank’s core programmes support over £12.4 billion 1  of finance to more than 90,000 smaller businesses 2 .

As well as increasing the supply and diversity of finance for UK smaller businesses through its programmes, the Bank works to raise awareness of finance options available to smaller businesses. The British Business Bank Finance Hub provides independent and impartial information to businesses about finance options, featuring short films, expert guides, checklists and articles from finance providers to help make their application a success.

The British Business Bank is also responsible for administering the government’s three Coronavirus loan schemes and its Future Fund, together responsible for delivering £80.4 billion in finance to 1.67 million businesses. These schemes are now closed to new applications.

British Business Bank plc is a public limited company registered in England and Wales, registration number 08616013, registered office at Steel City House, West Street, Sheffield, S1 2GQ. Wholly owned by HM government, the Bank and its subsidiaries are not banking institutions and do not operate as such. They are not authorised or regulated by the Prudential Regulation Authority (PRA) or the Financial Conduct Authority (FCA). A complete legal structure chart for the group can be found at the British Business Bank.

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