East of England sees surge in equity investment in SMEs
2/03/2022 - British Business Bank
The British Business Bank’s Small Business Finance Markets 2021/22 report highlights a surge in equity investment into smaller businesses based in the East of England last year. Seven hundred and fifty one million was invested over the first three quarters of 2021, a 73% increase on the same period last year, already surpassing the £595m seen across the whole of 2020.
The number of deals in the East of England increased by 22% and the region attracted 6% of all equity investment deals in the UK during Q1-Q3 2021. The East of England is home to 10% of UK smaller businesses, so despite a rise in the number of deals, investment remains under what it should be compared to the local size of smaller business population.
Increased equity investment in the East of England mirrors a broader national picture. A total of £14bn was invested in smaller business across the country over the first three quarters of 2021, a 130% increase on the £6.1bn invested over the first three quarters of 2020. With one quarter still to go, investment has already exceeded the £8.7bn invested in the whole of 2020.
East of England attracts a growing number of venture capital investors
While the UK hosts a large number of rapidly growing businesses, external finance remains highly concentrated in the capital, compared to other regions. London firms attracted 70% of 2021 Q1-Q3 investment value. This is partly due to the geographic location of the equity investors themselves who are predominantly based in the capital. This was also evidenced in the Bank’s first Regions and Nations Tracker which showed 82% of equity investment stakes in the UK are between investors and SMEs located within two hours of each other.
That being said, the number of local venture capital investors in the East of England has been gradually increasing over the past few years and the number of investors involved in venture capital present in the region has almost doubled over the last four years to 66 identified.
While both demand and supply-side factors contribute to geographic imbalances in finance flows. 30% of businesses in the East of England are happy to use external finance to grow, in contrast to London the figure rises to 37%.
Breaking down regional barriers in access to finance remains key to levelling up economic opportunity. That is why the British Business Bank remains committed to addressing regional disparities in access to external finance, and is reflected in the recent Spending Review, at which the Bank was provided with additional £1.6bn for new regional funds and a further £150m for regional angel investment. In 2021, the Bank’s core programmes are estimated to have deployed more than £979m of finance to businesses outside of London.
Steve Conibear, UK Network Director, South and East of England at the British Business, said: “As smaller businesses in the East of England look to recovery and growth following an incredibly challenging economic period, external finance will continue to play a critical role. Regional gaps in growth finance are undoubtedly holding back our ambitious entrepreneurs and economic opportunity. The British Business Bank will continue to support the region’s smaller businesses by improving access and options to secure external finance.”
Debt markets returning to pre-pandemic levels
In addition to the growth in equity finance, the report indicates that UK debt markets overall are returning to near pre-pandemic levels. Challenger and specialist banks accounted for just over half of the bank lending market (51%) – a record share, up from 32% in 2020.
The amount of debt held by smaller businesses has significantly increased compared to pre-pandemic levels due to businesses accessing the government’s Covid-19 emergency finance schemes. At their peak in March 2021, smaller business debt stocks were estimated to be 30% up. Encouragingly, however, debt repayments are becoming a smaller share of businesses cash flow as UK economic recovery helps boost their turnover
Half of Ethnic Minority-led businesses are open to using finance for growth
The report also indicates that Ethnic Minority-led businesses are more open to using finance and more ambitious for business growth but access to finance remains an issue. Half (50%) of Ethnic Minority-led businesses are open to using finance for growth compared to a third (32%) of White-led businesses. More Ethnic Minority-led businesses (64%) have ambitions for significant growth compared to 39% White-led businesses. Amongst female-led businesses, appetite for using external finance has significantly increased to 31% in Q2 2020-Q2 2021, but remains lower than for male-led businesses at 39%.
Almost half of smaller businesses view reducing carbon emissions as a priority
In 2021, almost half (47%) of smaller businesses viewed reducing their carbon emissions or environmental impact to be a priority for their business and one in five (22%) would use external finance to help transition their business to net zero. Just over one in 10 (11%) of smaller businesses have already used external finance to support net zero actions.
Click on the link to read the full Small Business Finance Markets report 2021
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