The British Business Bank has published its first annual ‘Regions and Nations Tracker’ report. The report looks at UK regional disparities in access to growth finance for smaller businesses.
The report’s key finding is that regional disparities persist, particularly in access to equity finance and private debt, despite over four in ten businesses using external finance. For example, the report found that London, the South East, the North West and the East of England account for 86% of equity deals despite hosting just 55% of businesses.
Additionally, taken together, the top 20 local authorities, which also include non-London hotspots such as Manchester, Bristol, Cardiff, and Newcastle upon Tyne, account for 58% of all deals since 2011. By contrast, Yorkshire and the Humber account for just 1.5% of equity investment and 4.9% of private debt activity while hosting 7.2% of the business population.
London, Scotland and the North East of England fall within what the report calls the “self-contained” category due to the prevalence of the local investor base in equity transactions in companies within each geography. London is the most self-contained region, with 90% of equity investors in London businesses also based in London, followed by Scotland at 81% and the North East with 66%.
Strong investment links were also identified between different parts of the UK. On average 60% of investors into businesses in the East of England, South East, East Midlands and South West are based in London.
London still dominates growth finance, accounting for 62% of equity investment and 35% of private debt investment despite only having 19% of the UK’s SME population.
Given this focus on cities, the report found rural business owners were more likely to inject personal funds into their business. The report found 38% of rural construction business owners used personal funds compared to 27% of their urban counterparts.
Furthermore, the distance between investor and company matter. In 82% of equity investment deals the investor and company are within two hours of each other, and 61% they are within one hour of each other.
However, this preference for short distance deals has not been impacted by the increase in remote working due to Covid-19. While the data shows only a slight uptick in the mean and median travel time in 2020 in over half of investment stakes in 2020, the investor and company are within 30 minutes or less of each other, and on average within 70 minutes.
Catherine Lewis La Torre, CEO of British Business Bank, said: “The lower flows of finance in certain regions and localities reflect a population of businesses operating with fewer choices. These gaps in growth finance are undoubtedly holding back ambitious entrepreneurs and lead to wasted economic potential. This is something the British Business Bank is committed to changing.”
The British Business Bank highlighted its regional investments, having invested £943 million in businesses outside of London in 2020/21, exceeding its original target of £868 million. In total 86% of businesses supported by British Business Bank’s programmes are based outside of London.
Overall the report argues that investors with a local presence are critical to the success of UK equity ecosystems. The data shows a clear positive correlation between equity deals per high-growth business and the strength of the local investor base.