Regional Disparities in Small Business Finance

Regional Disparities in Small Business Finance

The British Business Bank’s (BBB) Small Business Finance Markets report was published on 20th February. The report is generally positive about the growth of small businesses. However, it highlights grave regional imbalances in equity finance which are impacting the supply and demand of funds for small businesses. The BBB offers solutions to tackle these imbalances, with the hope of allowing SMEs in the regions to compete with their southern counterparts.

The Problem – Slowing Economic Growth 

Unfortunately, over the last year the economy has slowed. The regional disparities in equity finance have grown. London and the South East region have grown with regards to the share of equity investment. Staggeringly, in 2011, 44% of the equity deals that took place in the UK were in London and the South East. By 2017, this had increased to 63%.

There has also been a lower share of bank lending in London and the South East, compared to business population. Interestingly, this does not suggest that these regions have less access to finance from banks.

This is due to several factors:

  • The increase in software deals, of which 61% are in London
  • Fewer equity fund managers in the regions – this could have a knock on effect of there being a knowledge gap on accessing alternative sources of finance for SMEs
  • Less awareness of equity finance and business angels in the regions – The 2017 British Business Bank Finance survey shows 69% of SMEs in London are aware of venture capital as a source of external finance, compared to 58% in the North and 61% in the Midlands.

These points have led to the British Business Bank making several key recommendations to boost regional small businesses’ access to finance.

Industrial Strategy and “Digital Information Hub”

Raising awareness of alternative sources of finance in regions outside London and the South East will close the gap in regional growth. As such, the BBB is undertaking three fundamental activities to increase financial knowledge sharing in the regions:

  • Investing in region-specific funds for the Northern Powerhouse and Midland Engine, with the BBB setting up a fund for Cornwall and the Scilly Isles this year
  • Setting up a programme to support regional clusters of business angels and establish a regional managers network
  • Creating a new “digital information hub” for SMEs which will help them find the finance options which work best

These actions are aimed at increasing awareness of the availability of asset finance outside of London and the South East. Hopefully, the provision of better information and improvement of infrastructure across the regions will lead to alternative forms of finance becoming a popular and valid route for small businesses who want to expand.

To discuss your small business finance needs, please don’t hesitate to contact us.