Use of external finance across the UK increases, as businesses remain cautiously optimistic on the economy
Press release
- External finance usage rose to 46% in 2023, marking a 10 percentage-point increase from the previous year
- Credit cards emerged as the most popular and fastest-growing finance option, used by 17% of businesses
- 61% of smaller businesses see more threats than opportunities in the current landscape
- Equity deals declined across the UK in 2023, but early 2024 shows signs of recovery
The British Business Bank’s fourth Nations and Regions Tracker, published today, 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 businesses (61%) viewed current trading conditions as presenting more threats than opportunities, despite Q1 2024 seeing a 7% increase in equity funding relative to Q1 2023.
Use of external finance rebounds in 2023
External finance usage among smaller businesses saw notable growth in 2023, with 46% of businesses now leveraging it, up 10 percentage points from the previous year. Wales led the way, with 53% of smaller businesses using external finance, marking a significant 16 percentage-point increase.
The Midlands, North East, South East, and Northern Ireland also experienced strong performances with double digit growth in external finance usage. However, growth rates were more modest in Scotland, Yorkshire and The Humber, and the South West. The East of England was the only region where usage remained in line with the previous year.
The report also shows an increasing reliance on credit card usage. 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 and vehicle finance (12%), highlighting the challenges for businesses seeking external finance.
Cautious optimism among smaller businesses but challenges remain
Smaller businesses 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%) 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%) still viewed current trading conditions as presenting more threats than opportunities and over three quarters (76%) were still feeling the impact of recent increases in costs in 2023.
Demand for loans and overdrafts remained subdued
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.
Northern Ireland, Scotland, and the North East lead the way with the highest concentration of bank loans and overdrafts relative to the size of their small business populations, although this is largely driven by the strong presence of finance-reliant sectors such as agriculture and manufacturing in these regions.
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% increase in the volume of approved loans and overdrafts compared to the first half of 2023, with the South East experiencing the largest uptick.
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. 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% compared to the same period in 2023, suggesting renewed investor confidence.
London continued to dominate the UK's equity landscape, accounting for nearly half (49%) of the country's total deal count and 63% of its investment value. However, the UK market continued to face significant challenges in 2023. The number of equity deals outside London fell by 22% year-on-year to 1,098, while total investment dropped by 48% to £3.27 billion.
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 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.
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.
The British Business Bank has - and will continue to - play a pivotal role in providing businesses in the Nations and regions with access to the finance they need. We stand committed to continue our work to unlock potential and help boost long-term growth throughout the United Kingdom.
- Louis Taylor CEO, British Business Bank
Further Information
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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 £17.4bn Read footnote text 1 of finance to almost 64,000 Read footnote text 2 smaller businesses.
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 £80.4bn in finance to 1.67m 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 on the British Business Bank website.
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1
Figures as at end March 2024
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2
Figures as at end March 2024
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