Small firms' concerns about securing finance can't be ignored - Susan Nightingale

The strength and depth of these high-growth names are among the reasons why, according to the British Business Bank’s latest Nations & Regions Tracker, Scotland managed to buck the UK trend by registering a rise in equity deal activity among smaller businesses during the first half of the year – one of only two parts of the country to do so. The UK, as a whole, recorded an average fall of 15 per cent in transactions compared to the same period in 2023 – though, there were signs of stabilisation.

In fact, Scotland outperformed all other parts of the UK outside London between 2021 and 2023 when equity deal activity is adjusted for the size of the Nation’s high-growth enterprise population. The country recorded an average of 0.33 transactions per high-growth business, comfortably ahead of the UK average of 0.24 and North East England of 0.21. The average deal value in Scotland was £1 million – behind only London and the East of England.

Yet, despite Scotland’s outperformance relative to other parts of the UK in terms of deal activity, our report found that there was a general lack of belief among owners of smaller businesses when it it came to their ability to attract finance. Scottish small firms were the least optimistic about their skills and ability to secure funding, with just 52 per cent confident in their ability to do so, against a UK average of 60 per cent.

Concerns about economic uncertainty also remained prevalent, with 62 per cent of smaller businesses in Scotland – broadly in line with the average for the rest of the UK – feeling that the trading environment offered more threats than opportunities. The share of respondents that reported being affected by cost increases was above average at 81 per cent, compared to 76 per cent across the UK.

There were, however, some signs of improvement to lending conditions. Borrowing intentions among smaller businesses in Scotland saw a modest improvement – with the proportion planning to borrow or renew rising to 11 per cent, up from 7 per cent in 2022. There were also increases in the number of loans and overdrafts secured, all of which are encouraging signs – particularly when combined with the resilience of Scotland’s smaller business equity market.

Nevertheless, the challenges cannot be ignored – especially when it comes to concerns among small business owners around their ability to secure finance. This is one of the major reasons the British Business Bank established its £150 million Investment Fund for Scotland during 2023, aiming to address barriers to finance for smaller businesses across the country. We have already seen high-growth potential companies, such as Carcinotech and Calcivis, access the Fund to put their plans for growth into action.

It is encouraging to see a rebound in the number of smaller businesses in Scotland using equity to raise finance for growth, along with positive borrowing indicators – particularly during such a tricky period for markets. With our Investment Fund for Scotland now well underway, providing a range of financing options for businesses across the country, we would hope to see that trend continue.

Susan Nightingale, Director, UK Network, Devolved Nations at the British Business Bank