The British Business Bank’s fourth Nations and Regions Tracker found usage of external finance increased to almost half (49%) of small businesses in the West Midlands in 2023 - up 14 percentage points on the previous year.
The report also found that 58% of smaller businesses in the area viewed trading conditions as presenting more threats than opportunities.
External finance usage among smaller businesses saw notable growth across the UK, with 11 of the 12 Nations and regions recording an uptick. East and West Midlands, North East, South East, Northern Ireland and Wales all saw double digit growth.
The report also shows an increasing reliance on overdrafts. Small businesses in the West Midlands were some of the most reliant on bank overdrafts with 16% utilising them - up 5 percentage points on last year. Nationally, credit cards were the most used and fastest growing finance type with nearly one in five (17%) smaller businesses using them, highlighting the challenges for businesses seeking external finance.
Smaller businesses showed renewed interest in external finance in 2023, with a growing number using it to seek investments that had previously been delayed. Of those surveyed, 29% said that they would be willing to use finance to help them grow and 34% of businesses anticipated needing to use finance in the next 12 months.
Although inflationary pressures had slowly begun to ease in 2023, the majority (58%) still viewed current trading conditions as presenting more threats than opportunities and over three quarters (79%) were still feeling the impact of rising costs.
The UK equity market experienced a decline in the number of announced deals across all Nations and regions in 2023, reflecting ongoing economic challenges.
The number of announced equity deals taking place in the West Midlands fell by 21% in 2023 to 71 deals - down from 86 deals in the previous year. Similarly, the number of announced equity deals outside of London fell by 22% year-on-year to 1,098, while total investment dropped by 48% to £3.27 billion.
Nationally, early signs from the first half of 2024 indicate stabilisation, with a positive outlook for the year ahead. In Q1 2024, equity funding for smaller businesses across the UK increased by 7% compared to the same period in 2023, suggesting renewed investor confidence.
The British Business Bank has continued to deliver significant support to smaller businesses across the UK through its debt and equity finance programmes, with a focus on benefitting firms outside of London.
In February 2024, the British Business Bank launched the Midlands Engine Investment Fund II, a £400m fund aimed at unlocking additional funding to help smaller businesses in the Midlands prosper and thrive. In the West Midlands, the fund has so far provided over £1 million to smaller businesses across the region.
The Bank’s geographically-focused funds provided £236 million in equity funding to over 200 companies located outside the capital in 2023, with a particular emphasis on supporting spinouts in regional markets, highlighting its commitment to fostering innovation and growth in the Nations and regions.
Victoria Mears, UK network director for the Midlands, British Business Bank, said: “Interest in external finance appears to be growing amongst smaller businesses in the West Midlands, indicating confidence in their plans for growth.
“It is important for businesses to access the right kind of external funding for them. The British Business Bank is here to help our region's founders do just that and realise their ambitions for growth as they look towards the future.”
