Equity investment in smaller Scottish firms drops in 2023 amid economic stormclouds, but market showing 'resilience', says British Business Bank

Figure on track to record third-highest annual figure since 2013.

Susan Nightingale of the British Business Bank says: 'Deal-making slowed across the board during 2023, as markets adjusted to 14 consecutive interest rate rises, but the market in Scotland showed a good degree of resilience.' Picture: contributed.

Equity investment in Scotland’s smaller businesses nearly halved last year against a gloomy economic backdrop but was still ahead of the UK average and is seen as showing “a good degree of resilience”, according to new research from the British Business Bank (BBB).

The total value of such activity north of the Border had last year reached £295 million by the end of the third quarter, according to the state-backed lender’s Small Business Finance Markets 2023/24 report. That was down on £562m in 2022 and 2021’s £417m, but ahead of the ten-year average of £236m.

During the first nine months of 2023 there were 118 equity deals in Scotland, below the ten-year average of 134, but the average deal size was the second-highest of the previous decade at £2.5m, behind only 2022’s £3.6m. Looking at the use of external finance by smaller businesses, there was an 11 per cent increase in overdraft use and an 8 per cent increase in credit card use in 2023 to the end of September north of the Border.

Susan Nightingale, director UK network, devolved nations at the BBB, said: “Deal-making slowed across the board during 2023, as markets adjusted to 14 consecutive interest-rate rises, but the market in Scotland showed a good degree of resilience. After a slow start to the year, activity picked up in Q2 and Q3 – the final quarter will hopefully show some positive momentum moving into 2024.”

The BBB added that a survey of intermediaries, such as accountants, lawyers, and brokers, carried out as part of the report found that respondents in Scotland believed that lack of awareness of the financial options available to smaller businesses (70 per cent) and access to finance (51 per cent) were the biggest barriers to demand.

Nightingale said: “Awareness of and access to different financing options are regularly highlighted as the biggest challenge when it comes to smaller businesses looking to grow – particularly for entrepreneurs in more remote and rural areas. Our survey demonstrates that they remain the biggest issues, despite other macro-economic factors.” She also touched on the bank’s £150m Investment Fund for Scotland that launched last year. “We are already beginning to see the first deals come though and look forward to announcing more soon.”