Equity into smaller businesses surges 130% in 2021

Businesses in London are more open to finance, but they tend to be closer to investors

The latest data from the British Business Bank shows that equity into smaller businesses went up 130 per cent in the first three quarters of 2021 to £14bn.

That’s a 61 per cent improvement on the first three quarters of 2020. Even with one quarter left to go, the investment had already exceeded the £8.7bn invested in all of 2020. In fact, the investment is on course to double in comparison to 2020.

Bank lending also returned close to pre-pandemic levels, down 45 per cent from 2020, driven by lower drawdowns.   

The report suggests that economic recovery will continue into 2022. This year will still pose tricky challenges for some businesses, but many others are moving towards growth, improved productivity and towards net zero.

>See also: Transition to a net zero future with green finance

London more open to taking finance than the rest of the UK – or so it seems

Long-run data covering 2019 to mid-2021 show London businesses remain more open to using finance, with 37 per cent happy to use finance to grow compared to 29 per cent-32 per cent of smaller businesses in most other parts of the UK.

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 per cent of 2021 Q1-Q3 investment value. This is partly due to the geographic location of the equity investors themselves, which are predominantly based in the capital. This was also evidenced in the Bank’s first Regions and Nations Tracker, published in October 2021, which showed 82 per cent of equity investment stakes in the UK are between investors and smaller businesses located within two hours of each other. 

Difficulties for ethnic minority and women-led businesses

The report also shows that ethnic minority-led businesses are more open to using finance and more ambitious for business growth but access to finance is a struggle. Half of ethnic minority-led businesses are open to using finance for growth compared to a third (32 per cent) of white-led businesses, the report reveals.

More ethnic minority-led businesses (64 per cent) have ambitions for significant growth compared to 39 per cent white-led businesses. Despite this, ethnic minority-led businesses are more likely to be discouraged from applying for external finance and having their application turned down. Although rejection rates have declined in recent quarters, most likely reflecting the impact of government-backed loan schemes, they remain significantly above those for white-led firms, with data showing that 18 per cent of ethnic minority-led businesses were turned down for finance between Q3 2020 and Q2 2021, compared to only ten per cent of their white counterparts. This means that ethnic minority-led firms are around twice as likely to cite access to finance as a barrier (23 per cent) than white-led businesses (12 per cent).

Amongst female-led businesses, a desire for external finance has significantly increased to 31 per cent in Q2 2020-Q2 2021, but remains lower than for male-led businesses at 39 per cent. Female-led businesses are also more likely than male-led businesses to be discouraged from applying for finance, with issues such as uncertainty over where to find finance and concern over the application process being too burdensome.

Small Business Minister Paul Scully said: “This report shows a massive 130 per cent increase in equity investment into smaller UK businesses, which is a hugely positive step forward in our recovery from the pandemic.

“However, there is clearly more to do to get ethnic minority and women-led businesses on to a level playing field when it comes to accessing finance. The Government will continue to work with the sector, including through Start Up Loans and the Rose Review of female entrepreneurship, to ensure everyone has the tools they need to succeed.”

Read more

Starting a business with no funding

About the Author

Proudly poweredd by WordPress