West Midlands smaller businesses are showing strong signs of recovery and a renewed appetite for growth according to figures revealed today by the British Business Bank’s eighth annual Small Business Finance Market Report 2021/22.
Equity investment in West Midlands’ smaller businesses reached £277 million by the end of 2021’s third quarter across 46 deals. This was an 18 per cent rise on the number of equity deals completed in the same period in 2020, however the region experienced a 25 per cent drop in investment value. Nationally, equity investment in smaller businesses surged in 2021, with figures on course to double with one quarter of data still to go.
Demand for finance in the West Midlands remains robust, with 32 per cent of smaller businesses surveyed stating they would be happy to use finance to grow. On the supply side, 2021 saw steady growth in the region’s local venture capital sector, with 21 unique investors involved in venture capital now present in the region. The distance between investors and companies was identified in the Bank’s Regions and Nations Tracker report published in October 2020 as a key factor within equity investment, 67 per cent of equity investment stakes in the West Midlands are within two hours of each other.
Dr Sophie Dale-Black, Midlands UK Network Director at the British Business Bank, said: “This report shows that following an incredibly challenging economic period for small businesses, not only are we seeing our region’s resilience, but there is a clear appetite for growth.
“There is work to be done, breaking down regional barriers to access to finance remains key to levelling up economic opportunity, which we remain committed to addressing.”
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 – a record share, up from 32 per cent 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 to help them survive. At their peak in March 2021, smaller business debt stocks were estimated to be 30 per cent up. Encouragingly, however, debt repayments are becoming a smaller share of businesses cash flow as UK economic recovery helps boost their turnover
The report from the British Business Bank also looked at various factors impacting entrepreneurs’ willingness and ability to access finance. It reported 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 of Ethnic Minority-led businesses are open to using finance for growth compared to a third of White-led businesses. More Ethnic Minority-led businesses have ambitions for significant growth compared to 39 per cent of White-led businesses.
In 2021, almost half of smaller businesses viewed reducing their carbon emissions or environmental impact to be a priority for their business and one in five would use external finance to help transition their business to net zero. Just over one in 10 of smaller businesses have already used external finance to support net zero actions.
The Midlands Investment Fund (MEIF) delivered by the British Business Bank invests both debt and equity finance and recently reached the milestone of more than £150m invested into small businesses across the Midlands since its launch in 2017. The milestone was reached by the Fund last month after making 702 investments in 500 businesses throughout both the West and East Midlands. An additional £251m of private sector co-investment has also been leveraged as a result of the MEIF’s support.