News

External finance now used by four in ten businesses across the UK, but a lack of local investors leads to wasted economic potential

  • London, the South East, the North West and the East of England account for 86% of equity deals despite hosting just 55% of businesses
  • Distance matters – in 82% of equity investment stakes between 2011 and 2020, the investor and company are within two hours of each other; 61% are within one hour of each other
  • Rural business owners more likely to inject personal funds into their business than urban entrepreneurs because of a lack of growth finance options
  • British Business Bank invested £943m in businesses outside of London in 2020/21

More than four in ten businesses in the UK were using external finance in 2021 but a lack of local investors means economic potential continues to be wasted across the UK’s Regions and nations. The British Business Bank’s first annual Regions and Nations Tracker, published today, reveals that regional disparities persist particularly in access to equity finance and private debt.

Core debt products including overdrafts, loans and credit cards are the most used forms of business finance in all regions and nations of the UK, but equity finance and private debt can support companies with the potential for rapid growth.

The report found London, the South East, the North West and the East of England accounted for 86% of equity investment and 69% of private debt investment despite hosting just 55% of UK businesses. By contrast, Yorkshire and the Humber accounts for just 1.5% of equity investment and 4.9% of private debt activity while hosting 7.2% of the business population. London still dominates growth finance, accounting for 62% of equity investment and 35% of private debt investment despite only having 19% of the UK’s SME population.

Investors favour short distance deals

The UK’s uneven distribution of growth finance is not driven by a lack of high growth potential business in certain areas of the country but by the presence of local investors. Investors are far more likely to invest in businesses close to their office – in 82% of equity investment stakes between 2011 and 2020, the investor and company are within two hours of each other; 61% are within one hour of each other.

The preference for short distance deals has not been impacted by the increase in remote working due to Covid-19, the data shows only a slight uptick in the mean and median travel time in 2020. In over half of investment stakes in 2020, the investor and company are within 30 minutes or less of each other, and on average within 70 minutes

Catherine Lewis La Torre, CEO of British Business Bank, said: “The lower flows of finance in certain regions and localities reflect a population of businesses operating with fewer choices. These gaps in growth finance are undoubtedly holding back ambitious entrepreneurs and lead to wasted economic potential. This is something the British Business Bank is committed to changing.”

The British Business Bank’s commitment to address regional imbalances

The Bank remains committed to addressing regional imbalances in access to external finance. 86% of businesses supported by British Business Bank’s programmes are based outside of London.

Between 2020 and 2021, the Bank invested £943m into businesses based outside of London (exceeding its original target of £868m).

Across its Regional funds, record deployment was recorded this year principally due to a strong second half of 2020/21, providing a £357m flow of finance into regional finance markets in 2020/21.

Regional fund managers also successfully secured co-investment from other Bank-delivered programmes, such as the Future Fund, to best support local companies.

Rural business owners more pressed into injecting personal funds

Access to growth finance is particularly difficult for rural business owners who were more likely to resort to injecting personal funds into their businesses in 2020, especially in the construction sector. The report found 38% of rural construction business owners used personal funds compared to 27% of their urban counterparts.

The report argues that investors with a local presence are critical to the success of UK equity ecosystems. The data shows a clear positive correlation between equity deals per high-growth business, and the strength of the local investor base.

Uneven spread of equity finance across the UK

The report reveals a striking degree of concentration in equity activity. Taken together, the top 20 local authorities, which also include non-London hotspots such as Manchester, Bristol, Cardiff, and Newcastle upon Tyne, account for 58% of all deals since 2011.

London, Scotland and the North East of England fall within what the report calls the “self-contained” category due to the prevalence of the local investor base in equity transactions in companies within each geography. London is the most self-contained region, with 90% of equity investors in London businesses also based in London, followed by Scotland at 81% and the North East with 66%.

Strong investment links were also identified between different parts of the UK. On average 60% of investors into businesses in the East of England, South East, East Midlands and South West are based in London.

The Regions and Nations Tracker 2021 report is available to download via our Regions and Nations Tracker 2021 report page.

 Local authorityDeal volume since 2011
1.Westminster1,084
2.City of London891
3.Islington792
4.Hackney760
5.Camden740
6.The City of Edinburgh589
7. Southwark545
8.Tower Hamlets467
9.Manchester309
10.South Cambridgeshire304
11.Hammersmith and Fulham246
12.Glasgow City240
13.Lambeth216
14.Cambridge210
15.The City of Bristol200
16.Cardiff191
17.Oxford179
18.Newcastle upon Tyne178
19.Kensington and Chelsea158
20.Leeds (20th equal)132
20.Birmingham (20th equal)132

Source: Beauhurst

About the Regions and Nations Tracker

The first annual Regions and Nations Tracker is designed to complement the Bank’s flagship Small Business Finance Markets report with analysis that illuminates the geographic patterns seen in UK small business finance.

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 £8.5bn[1] of finance to almost 95,000 smaller businesses[2]. Between March 2020 and March 2021, the British Business Bank was responsible for running the government’s Coronavirus business loan schemes, delivering £80.4bn of finance to 1.67m businesses.

As well as increasing both supply and diversity of finance for UK smaller businesses through its programmes, the Bank works to raise awareness of the finance options available to smaller businesses. The British Business Bank Finance Hub provides independent and impartial information to businesses about their finance options, featuring short films, expert guides, checklists and articles from finance providers to help make their application a success. In light of the coronavirus pandemic and EU Exit, the Finance Hub has expanded and it now targets a wider business audience. It continues to provide information and support for scale-up, high growth and potential high growth businesses, but now provides increased content, information and products for businesses in survival and recovery mindsets. The Finance Hub has been redesigned and repositioned to reflect this, during this period of economic uncertainty.

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. It is a development bank wholly owned by HM Government. British Business Bank plc 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 british-business-bank.co.uk

[1] Figures as at 31 March 2021

[2] Figures as at 31 March 2021