- Use of external finance overall has slightly increased in the region
- Equity investment in the North West held up in the first half of the year
- The North West saw a 210% increase in equity investment value in 2021
- Cheshire East named as a future cluster for net zero activity
- Businesses in highly deprived areas more open to using external finance but more likely to be rejected
- 17% of smaller businesses in the North West are based in the UK’s most deprived areas, making them more likely to face barriers to growth
The British Business Bank’s second annual Nations and Regions Tracker, published today, finds promising signs in the region’s equity finance markets and identified Cheshire East as a future cluster for net zero activity.
The Nations and Regions Tracker found that the number of smaller businesses using external finance rose slightly in the region with 44% of smaller businesses using external finance in the second quarter of 2022, up one per cent from 43% a year earlier.
The region was one of only three UK regions and nations to see a rise in the use of small business finance. Core debt products remain the most used and widely available across the region.
The North West saw a 210% increase in the value of equity deals in 2021 to £863m, a 25% increase in the number of deals. Q2 2022 data suggests that, despite the current global economic conditions, equity investment in the North West held up in the first half of the year, with deal numbers slightly above and investment seven per cent below H1 2021 levels. Initial data suggests the second half of the year will likely see a slowdown in equity markets.
The report also identified a number of potential future clusters of net zero innovation, with the Cheshire East area highlighted. The area has attracted £175m across 12 net zero equity deals since 2011, though the majority of this was raised in a single deal, worth £150m. Cheshire East accounts for 18% of net zero deals in the North West and 51% of the investment.
There were further signs of growth in equity finance markets beyond London, with the value of seed stage investment increased by 88% in 2021 compared to 2020. Seed stage investment is key to building the pipeline of investable opportunities to drive larger quantities of later stage capital investment in the future and is the rocket fuel needed as businesses scale and grow.
London’s dominance of equity finance markets continued in 2021. In total, 1,286 deals worth £11.9bn took place in London in 2021, representing 66% of investment and 49% of deals in the UK. The North West’s share of equity investment stood at six per cent of investment and five per cent of deals in 2021.
Businesses in the most deprived areas show greater ambition for growth
The Nations and Regions Tracker found that businesses in the most deprived areas of the UK are more open to using finance and report higher levels of ambition for growth, whilst facing greater challenges in accessing external finance.
Nearly half (49%) of businesses in the most deprived areas have a long-term ambition to be a significantly larger business, compared to 40% elsewhere. They are also more willing to use external finance to grow (36%) than businesses in less deprived areas (33%).
However, the report found that the growth ambitions of smaller businesses in the UK’s most deprived areas are being stifled because of a lack of access to finance. Just over 14 per cent of firms in the North West are based in the most deprived areas of England and Wales, making them more likely to face barriers to growth.
A quarter (26%) of smaller businesses in need of finance in deprived locations did not apply. Of those who did apply between 2020-21, 16% were turned down compared to just 11% elsewhere.
Dr Sophie Dale-Black, UK Network Director for the North of England at the British Business Bank, said: “The British Business Bank is committed to reducing regional imbalances in access to finance. We are seeing promising signs in the North West’s equity finance markets and data suggests equity investment overall in the UK is holding up in the first half of the year. It is encouraging to see evidence of a potential net zero cluster of investment emerging in the North West, which is already known as a hotbed of innovation and technology.”