‘Strength and resilience’ - How Scotland’s equity investment market is fighting back

The amount of money being pumped into smaller businesses in Scotland rebounded last year after a tough 2023, with the nation ranked top for deal numbers outside of London, new figures have revealed.

Releasing its latest research, the British Business Bank said that during the first three quarters of 2024 the overall investment value of announced equity deals involving smaller businesses in Scotland rose 14.2 per cent on the same period the previous year, to top £407 million.

That increase was more than double the UK-wide gain of 6.6 per cent and put Scotland on track to record the third highest annual figure for equity investment in the last decade. Only the standout years of 2021 and 2022, when there were £417m and £562m of deals respectively, were better.

Susan Nightingale, director, UK network, devolved nations at the British Business Bank.

While the actual number of transactions dropped slightly, by 1.5 per cent to 135, this was the second best year-on-year change among the UK’s “nations and regions” and well ahead of the average drop of 24.3 per cent. Only the north east of England saw an increase in the number of transactions, at 2.4 per cent, and Scotland ranked top for deal numbers outside of London, overtaking the south east of England.

Smaller businesses’ use of external finance dropped by 18 percentage points during the first six months of 2024 in Scotland amid a “challenging” economic environment throughout the UK. However, it was still the second highest rate for the first half in recent years, indicating a return to more normalised levels, the bank noted.

In late 2023, the state-backed British Business Bank launched its £150m dedicated Investment Fund for Scotland to increase the availability and supply of finance to all parts of the country. In its first year, the fund committed more than £10m to smaller Scottish ventures, through loans ranging from £25,000 to £2m and equity investments up to £5m, including Wilsons Pet Food, biotech Ingenza and Sky-Pin Drones.

Susan Nightingale, director, UK network, devolved nations at the British Business Bank, said: “Our report’s findings underline the strength and resilience of Scotland’s smaller business community and the financial ecosystem that supports it. With interest rates on a downward trajectory, financing conditions are improving and that should create a more supportive environment for finance into 2025.

In late 2023, the British Business Bank launched its dedicated Investment Fund for Scotland to increase the availability and supply of finance to all parts of the country.

“If we are to achieve the growth we all want in the UK economy, it is important that we continue to make the case for business investment which can help drive the economy, lift wages and improve living standards.

“In its first 12 months, the Investment Fund for Scotland has provided ambitious business owners across the country with the support they need to turn the next stage of their plans into reality,” she added. “With more than £10m committed, we hope to build on that momentum and provide even more firms with the funding that best suits their needs, wherever they are based and whatever sector they are part of.”

The British Business Bank was established towards the end of 2014. It is also responsible for administering the UK government’s three coronavirus loan schemes and its Future Fund, together responsible for delivering in excess of £80 billion in finance to 1.67 million businesses. These schemes are now closed to new applications.

Recently it was revealed that some 15,000 smaller businesses in Scotland have benefited from financial support since the bank launched just over a decade ago. An impact report revealed that 148,000 existing roles have been sustained and 11,000 additional jobs are expected to be created through bank-supported finance programmes. Scotland’s smaller businesses supported by the UK government-owned bank to date are projected to earn around £5bn in additional turnover, equivalent to £2bn of gross value added (GVA) - a measure of net economic contribution.

Around 7 per cent of small firms supported by the British Business Bank’s programmes are based north of the Border - broadly in line with the nation’s share of the UK’s business population.

Underlining its contribution to long-term economic value, the bank launched its Investment Fund for Scotland in 2023. It has so far committed more than £10m to support businesses across the country.

At a UK level, the bank has delivered in excess of £32bn in combined public and private sector funding over the last decade to support around 209,000 smaller businesses, which are expected to boost economic output by as much as £43bn over the lifetime of their finance. Up to 37 per cent of the businesses supported have used finance as part of a transition to net zero, using funds to reduce their environmental impact or develop green business models.

In addition, the impact study showed that the British Business Bank has leveraged more than £4 of private sector investment and lending guaranteed for every £1 of public funding deployed since 2014.

Louis Taylor, chief executive of the British Business Bank, said: “The impact report highlights the transformative role the British Business Bank has played in driving economic growth and shaping the financial landscape for smaller businesses across Scotland over the past decade. From improving access to finance for entrepreneurs and creating jobs, to backing innovation and championing sustainable growth, we are proud of the impact we have achieved since 2014. Over 7,500 founders in Scotland have received support through the Start Up Loans programme, for example, providing a boost for smaller businesses in every area.

“Looking ahead, as well as removing geographical barriers, an ongoing focus is ensuring female founders and other traditionally under-represented groups can access the funding they require.”

Inside a decade of the British Business Bank - how 15,000 Scottish firms thrived