North West SMEs see fall in equity investment in 2022
The North West experienced a decline in equity investment, with activity also slowing considerably across the UK since the third quarter in 2022.
The British Business Bank’s Small Business Finance Market 2022/23 report, published today (March 1) showed there were 108 announced equity investments into smaller businesses across the North West in the first three quarters of 2022, a five per cent decrease compared with the equivalent period in 2021.
The value of announced equity deals was also down by 35%, with the total investment value in the region being equal to £482m. While lower than the record high of £863m for the full year of 2021, Q1-Q3 2022 still exceeds the £279m of investment in the region in the full year of 2020.
With various economic headwinds impacting the activity of UK businesses, appetite for finance has subsequently taken a knock.
Overall demand for external finance has dropped significantly, from 44% among North West-based smaller businesses during Q3 2021 to 29% last year.
This was also reflected across the UK, with only 33% of small businesses using external finance in the third quarter of 2022, compared with 44% the year prior.
Across the UK, £35.5bn of bank lending came from challenger and specialist banks in 2022, exceeding lending by the major banks during the period, giving challenger and specialist banks a 55% share of the market.
At the end of 2022 Starling Bank announced plans to open a new Northern office in Manchester, set to bring 1,000 new jobs to the region.
With growing concerns around reducing carbon emissions, the move to a greener, more sustainable economy continues to impact the equity market.
Nationally, the report found that net zero deal numbers grew faster than the wider equity market in Q1-Q3 2022, compared with Q1-Q3 2021.
While only accounting for five per cent of SME equity deals in 2018, SME net zero deals have already risen to 12% in Q1-Q3 2022.
The North West saw net zero-related deals accounting for more than £114m worth of investment between 2018 and Q3 2022, a three per cent share of total UK deals.
One such innovative business from the North West is Cheshire-based Intelligent Building Group (IBG), part of the Northern Powerhouse Investment Fund.
It received a £580,000 investment in 2022 and is looking to continue its innovations in energy monitoring and reduction.
Having developed software that captures energy usage data across commercial, industrial and residential developments, the team is helping developments across the region to cut energy consumption and, ultimately, carbon emissions.
Sophie Dale Black, UK network director for the North of England at the British Business Bank, said: “Today’s report shows how small businesses across the North West are adapting to a more challenging economic climate as they reduce their use of external finance.
“However, we are seeing strong growth for challenger and specialist banks as businesses seek alternative finance options to help drive growth.
“There are also promising signs of growth in the North West’s net zero deal sector as equity finance markets respond to growing demand for investment in green innovation. Particularly as regions like Greater Manchester have set ambitious net zero targets for 2038, continued net zero investment remains crucial for the region’s sustainable economy.”