Signs of recovery in use of external finance by South West businesses
A new report has shown that the use of external finance by smaller firms in the south west is showing signs of recovery after a fall in 2022.
The British Business Bank’s third annual report on the matter showed that external finance declined in all UK Nations and regions in 2022, but was picking up again in the first half of 2023.
READ MORE: British Business Bank launches £200 million fund to support South West's small businesses
The bank is the UK government’s economic development bank, which aims to drive sustainable growth across the UK and enable the transition to a net zero economy.
A £200 million South West Investment Fund was recently launched - part of a series of funds which will deliver £1.6 billion of finance in the South West, Scotland, Northern Ireland, Wales, North of England and Midlands.
Throughout 2022, 37% of South West smaller businesses were using external finance - a drop from 46% the previous year, the report showed.
The share of smaller businesses willing to use finance to grow also declined from 35% in 2021 to 27% in 2022, which was below the UK average of 31% in 2022.
But the British Business bank said national data from the first half of 2023 suggested signs of recovery, with 42% of smaller businesses in the region anticipating late last year that they would need finance in the following 12 months.
In addition, only the south west, Yorkshire and the Humber, and Wales saw an increase in deal numbers compared to 2021.
In the south west there were 155 deals in 2022, up 4%, but actual deal value was down 32% to stand at £0.54 billion.
Despite this, there are early signs in 2023, which showed the decline in equity finance deals was beginning to ease.
The British Business Bank also noted that university spinouts played a crucial role in supporting emerging innovation-led clusters, and Bristol and Bath was a key spin-out hub.
Here academic spinouts made up 31% of local technology/I-related deals and 49% of investment value between 2011 and the second quarter of 2023, making it the 11th highest share across all clusters.
Meanwhile, the bank also noted that the south west included several of the UK’s most prominent coastal towns, such as Bournemouth, Poole and Torquay, where smaller businesses say they are less likely to be happy using external finance to grow (26%) compared to counterparts based elsewhere in the UK (31%).
But, 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 report showed.
This is a sign that many local smaller businesses are already trying to capitalise on opportunities from high-potential sectors such as the green innovation.
Louis Taylor, the CEO of the British Business Bank said: "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," he added.
"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," he said.
According to figures from the end of March this year, the British Business Bank’s core programmes support over £12.4bn of finance to more than 90,000 smaller businesses.
For the full report see HERE.
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