Smaller firms are central to Scotland's industrial economy
These firms need access to funding that can turn an opportunity into additional production and revenue, writes Sarah Newbould
Scotland’s industrial economy has changed significantly over the years, but its ability to compete in international markets remains rooted in a strong base of specialist businesses. Shipbuilding and heavy engineering no longer dominate as they once did, yet the skills and capabilities developed through those industries remain evident across manufacturing, energy and technology.
For many smaller businesses, the challenge is turning that expertise into sustained growth. Securing a new customer or larger contract can require investment in people, equipment or production capacity before the additional revenue arrives. That can leave a business with an opportunity in front of it but limited room to act.
Access to finance can become particularly critical at this point. Funding can give a firm the capability to invest ahead of increased income, helping it respond when demand starts to outpace what its existing resources can support.
The key is ensuring firms can access the right type of finance when opportunities emerge. The British Business Bank’s Investment Fund for Scotland (IFS) is one source of finance available to businesses at this stage. The £150 million fund provides smaller loans from £25,000 to £100,000, debt finance from £100,000 to £2m and equity investment of up to £5m, delivered through DSL Business Finance, The FSE Group and Maven Capital Partners.
An early independent evaluation of IFS found evidence that the fund is helping businesses access finance they may otherwise have struggled to secure. By September 2025, it had deployed £31.6m through 81 investments to 75 smaller businesses and leveraged £33.3m of private sector funding.
The businesses backed by IFS illustrate the breadth of Scotland’s industrial base. Dunfermline-based PowerPhotonic develops precision optics for defence, aerospace and semiconductor manufacturing. In Aberdeenshire, Legasea is applying subsea engineering expertise to clean energy, while Glasgow-based Freedom One Life designs and manufactures power wheelchairs.
While their markets may differ, each has built its business around specialist expertise and a clear customer need. Investment can help firms like these boost the capacity needed to take the next step, whether that means fulfilling a larger order, increasing production or entering a new market.
The ability of smaller businesses to grow has implications for the wider economy. SMEs account for 99.4 per cent of Scottish private-sector firms and support around 1.2 million jobs. When these businesses expand, the benefits extend beyond the individual firm through new employment, greater demand for suppliers and increased economic activity.
That is particularly relevant to sectors such as advanced manufacturing, clean energy, defence and life sciences, which are among the priorities set out in the UK government’s Modern Industrial Strategy. Scottish businesses are already active across these areas, drawing on established knowledge to develop products and services for domestic and international markets.
The opportunity, therefore, is not simply to help individual firms become larger. It is to enable more of the economic value created by Scotland’s specialist capabilities to be captured here. If a business has the demand to expand but cannot invest in the capacity required, growth can be delayed or lost altogether.
Finance is only one factor in whether a business succeeds. But access to funding can determine whether a viable opportunity translates into additional production, employment and export revenue.
Scotland already has much of the expertise needed in industries expected to drive future growth. Ensuring smaller businesses can build on that will be crucial to turning those capabilities into wider economic gains.
Sarah Newbould, Associate Director, Nations & Regions Funds, at the British Business Bank
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