Fresh funding pledge as equity investment in Scotland’s smaller firms continues to rise

Equity investment in Scotland’s smaller businesses has continued to rise despite economic headwinds, and fresh support is on the way, a new report today reveals.

A total of £411 million was invested between January and June 2022, more than in the same period last year, according to research published as part of the British Business Bank’s annual Nations and Regions Tracker. Volumes are on track to exceed last year’s record of £540m. The bank warned initial data suggested that the second half of the year would likely see a slowdown in equity markets.

The report reveals that the trend towards larger deals in Scottish equity markets seen in 2021 appears to be continuing this year. Average equity deal sizes increased from £1.2m in 2020 to £2.5m in 2021, and in the first half of 2022 they were £3.5m. While the number of UK smaller businesses using external finance fell during the first half of 2022 - down from 45 per cent a year ago to 38 per cent - use of finance in Scotland held up better. The number of firms accessing finance was down slightly at 42 per cent, but remained slightly above the five-year average of 40 per cent.

According to the latest research, the growth ambitions of smaller businesses in the UK’s most deprived areas are being stifled because of a lack of access to finance. Almost one in ten of small firms in Scotland is based in the country’s most deprived areas, making those businesses more likely to face barriers to growth.

About a quarter (26 per cent) of smaller businesses in need of finance in deprived locations did not apply for finance. Of those who did apply in the past couple of years, 16 per cent were turned down compared to just 11 per cent elsewhere. The bank, which was established by the UK government, said it would be launching a number of investment funds next year to help tackle the geographical inequalities in access to finance across the UK. Those funds include a new £150m Investment Fund for Scotland.

Susan Nightingale, director, UK network, Scotland at the British Business Bank, said: “In recent years, the use of outside funding sources has remained steady among Scotland’s smaller businesses, with equity finance a notable growth area. That said, we are facing a challenging winter and the cost-of-living crisis will bring added pressures for smaller businesses that could impact their requirements for funding and ability to access support. It is important that all firms know what options are available to support them in the months ahead.

“No matter where ambitious business owners are based, they should have equal opportunities to access funding to support their goals. Our aim is to continue to tackle geographical imbalances with the launch of our new £150m Investment Fund for Scotland next year.”

In July, the bank revealed that about £230m has shored up smaller businesses in Scotland via the Recovery Loan Scheme as they steer a path towards a sustainable recovery. The amount offered from the scheme in Scotland represented 5 per cent of the UK total.