Cautious optimism returns as more North West businesses use external finance

• External finance usage by North West businesses rose to 45% in 2023, marking a 10 percentage point increase from the previous year
• However, challenges still remain, with 63% of smaller businesses seeing more threats than opportunities in the recent landscape
• Equity deals declined across the region in 2023, but showed signs of recovery in H1 2024

Use of external finance rebounds, but sentiment remains subdued

Usage of external finance among smaller businesses in the North West saw considerable growth in 2023, with 45% of businesses now leveraging it, up 10 percentage points from the previous year. The UK economy as a whole followed a similar trend, with 46% of smaller businesses using external finance, a nationwide increase of 10 percentage points.

Despite this uptick in the usage of external finance by smaller businesses, sentiment remains low across the North West, with 63% seeing more threats than opportunities in the trading environment in 2023. Persistent inflationary pressures are also continuing to impact smaller businesses across the region as 73% of smaller businesses reported having been impacted by rising costs over recent months.

Mirroring this subdued sentiment, funding levels for smaller businesses also fell across the North West in 2023. The number of bank loans and overdrafts secured by smaller businesses dropped by 7% across the region, with 7,971 provided. Likewise, the total value fell by 25% to £1.3bn.

Cautious optimism for the months ahead as equity investments stabilise

While sentiment remained subdued, many smaller businesses became cautiously optimistic about the months ahead. Across the North West, 33% of smaller business owners said they would be willing to use external finance to grow in 2023, up four percentage points compared to 2022. According to the tracker, 32% also said they anticipated needing external finance in the next 12 months, down nine percentage points.

This comes as equity investment across the region begins to stabilise in 2024. The North West, similar to much of the UK, experienced a relative slowdown in equity activity in 2023, with 114 equity deals completed, down 31% compared to 2022. The value of these deals also dropped by 67% to £230m.

In contrast, the first half of 2024 has shown encouraging signs of stabilisation. While deal volumes dropped by 2% to 65 when compared to the same period in 2023, deal value rebounded, increasing by 50% to £192m.

Research and development was more widespread among North West smaller businesses than the UK average, with 45% of smaller businesses investing in R&D across the region (vs 39% nationally). An additional 30% were also undertaking new-to-market innovation. British Business Bank driving impact across the North West

With a focus on supporting businesses outside of London, the British Business Bank has continued to deliver significant support to smaller businesses across the North West through its debt and equity finance programmes.

In March 2024, the Bank launched the £660m Northern Powerhouse Investment Fund II (NPIF II). Now extending across the entire North of England, the fund aims to drive sustainable economic growth by supporting innovation and creating local opportunity for new and growing businesses, all while breaking down traditional barriers in access to finance.

Across the North West, the Bank’s Start Up Loans programme has also continued to support ambitious entrepreneurs to start up on their own. In the year ending March 2024, 1,272 loans were provided across the North West, an increase of 17% on the previous year. The value of these loans also increased by 20% to £17m.

Victoria Mears, Director, UK Network Midlands and North of England at the British Business Bank, said: “Businesses in the North West, and indeed across the UK, have had to grapple with a more challenging economic environment over the last few years, so it’s encouraging to see some optimism returning across the region. Particularly across research and development, there’s plenty of opportunity for businesses to grow and thrive, and external finance is a great way to capitalise on this.

“At the British Business Bank, our commitment to supporting smaller businesses right across the UK has been unwavering. The North West is home to a thriving ecosystem of innovative businesses, and we’re poised to help them reach their full potential. With the launch of Northern Powerhouse Investment Fund II, and our ever-growing Start Up Loans programme, we’re ensuring businesses of all sizes can access the finance they need to grow and, ultimately, drive forward economic growth.”