Confidence and appetite for growth rises among small businesses in the East Midlands

Sophie Dale-Black

Dr Sophie Dale-Black, Director, Midlands – UK Network at the British Business Bank

As we enter a post-pandemic landscape, small businesses in the UK have bounced back, with the British Business Bank’s eighth annual Small Business Finance Market Report revealing a healthy appetite for external growth finance.

External finance has played an important role in helping smaller businesses navigate the pandemic, but it has also helped them adapt and continue to grow.

Investment opportunities

Equity investment in smaller businesses based in the East Midlands reached £74 million by the end of 2021’s third quarter, across 41 deals. This marks a substantial increase in investment in the region, up 72% compared to the same period in the previous year. With one quarter of data still to go, investment has nearly exceeded the £76m invested in the whole of 2020 in the region.

It has also been encouraging to see many forms of alternative debt finance showing signs of recovery in 2021, including challenger and specialist banks’ share of the market rising sharply to a record high.

Demand for finance in the East Midlands remains robust, with 31% of smaller businesses surveyed stating they would be happy to use finance to grow. According to a recent survey of our East Midlands business intermediary network, which includes accountants, lawyers and business support specialists, external finance for working capital, investment and growth are the key areas that are firmly in the minds of small businesses looking ahead across 2022.

However, the majority of intermediaries (71%) surveyed highlighted that recruiting and retaining staff is a high concern for smaller businesses, potentially a significant factor in delivering the desired growth from businesses.

Accelerating the transition to net zero

Driven by the expectations of today’s increasingly climate-conscious customers and the need to remain competitive, the Small Business Finance Market Report found that financing the transition to net zero was the fourth most common area in which smaller businesses would be looking for finance

The intermediary survey further highlighted that the main motivations for East Midlands businesses looking to transition to net zero are doing so for customer and reputational reasons, as well as to attract talent.

Cost was found to be the most common barrier to smaller businesses improving environmental credentials in 2021, with the British Business Bank’s Smaller businesses and the transition to Net Zero report finding that cost was a concern for 35% of smaller businesses.

Breaking down regional barriers

Here we see further progress as the region continues to attract locally based investors, with proximity between investors and small businesses a key factor within equity investment. In 2021 there were 17 unique investors involved in venture capital now present in the region, nearly double the 9 identified in 2017.

Despite the positives seen here in the region, our research highlights that geographic imbalances remain with external finance concentrated in London, where firms attracted 70% of 2021 Q1-Q3 equity investment value.

There is work to be done and we remain committed to reducing regional imbalances in accessing finance. Our new mission at the Bank is to continue to drive sustainable growth across the UK, and to enable the transition to a net zero economy, by improving access to finance for smaller businesses.