Wales is on course for a record year of equity investment in 2021, according to the British Business Bank eighth annual Small Business Finance Market 2021-22 report published today.
Deal values increased by 14% in Q1-Q3 2021 compared with the same period in the previous year, despite the number of deals decreasing by 29%. With one-quarter of data still to go, investment at the end of Q3 2021 stood at £63m, compared with £79m in the whole of 2020.
Across the UK, equity investment in smaller businesses surged in 2021, on course to double compared with 2020.
Data in the report also indicates that, to date, Welsh businesses have largely weathered the pandemic well, with Welsh business populations experiencing the lowest rate of decline in the stock of firms between 2020 and 2021 (0.7%) compared with other UK regions and nations. Northern Ireland experienced the highest decline (16.6%), double that of London (8%).
Welsh businesses remain open to using finance to fuel growth, second only to London, with 35% of Welsh smaller businesses happy to use finance to grow compared with an average of between 29%-32% in other parts of the UK.
Wales attracts a growing number of venture capital investors
And when it comes to supply of finance, in Wales there has been an increase in the number of investors involved in Venture Capital (VC) operating in the nation since 2017, taking the total to eight. However, totals remain significantly lower than in other regions and nations of the UK, including Scotland (65) and Northern Ireland. The total does not include the Development Bank of Wales that lends and invests directly in Welsh smaller businesses on behalf of the Welsh Government.
Mark Sterritt, UK Network Director, Wales at British Business Bank, said:
“The equity investment picture in Wales is very positive, with 2021 expected to be a record year despite the rigours of the pandemic.
“The report paints a generally optimistic investment picture across Wales, with numbers of local VCs on the up and deal values rising. Additionally, following significant amounts of debt held by smaller businesses as a result of pandemic lending, the economic recovery across Wales is facilitating a boost to cashflow which is reducing the proportion of debt repayments as part of turnover.
“It should also be noted that the fact Wales experienced the lowest rate of decline in the stock of firms between 2020 and 2021 compared to other UK regions and nations. This is an extraordinarily encouraging sign and is testament to the resilience of the businesses operating across the country.”
Breaking down barriers to accessing finance remains key to levelling up economic opportunity. To help address this, British Business Bank will be administering a new £130m fund dedicated to supporting smaller businesses in Wales, announced in the recent Spending Review. The Bank will be working with the Development Bank of Wales and local stakeholders to deliver this increased support.
A further £150m for the Bank’s Regional Angels Programme, whose underlying investments include Hengoed-based Transcend Packaging was also announced in the Spending Review.
In addition to the growth in equity finance, the report indicates that UK debt markets overall are returning to near pre-pandemic levels. Challenger and specialist banks accounted for just over half of the bank lending market (51%) – a record share, up from 32% in 2020.
Debt markets returning to pre-pandemic levels
The amount of debt held by smaller businesses has significantly increased compared to pre-pandemic levels due to businesses accessing the government’s Covid-19 emergency finance schemes. At their peak in March 2021, smaller business debt stocks were estimated to be 30% up. Encouragingly, however, debt repayments are becoming a smaller share of businesses cash flow as UK economic recovery helps boost their turnover.
Half of ethnic minority-led businesses are open to using finance for growth
The report from the British Business Bank also looked at various factors impacting entrepreneurs’ willingness and ability to access finance. It reported that while ethnic minority-led businesses are more open to using finance, they are less likely to obtain it, and twice as likely to see access to finance as an obstacle to running their businesses. Among female-led businesses, appetite for external finance has significantly increased to 31% in Q2 2020-Q2 2021, but remains lower than for male-led businesses at 39%.
Almost half of smaller businesses view reducing carbon emissions as a priority
Additionally, the report found that in 2021 almost half (47%) of smaller businesses viewed reducing their carbon emissions or environmental impact to be a priority for their business and one in five (22%) would use external finance to help transition their business to net zero. Just over one in 10 (11%) of smaller businesses have already used external finance to support net zero actions. In contrast, almost three-quarters of smaller businesses (71%) viewed maintaining or increasing sales to be a high priority.