Equity investment remains highly concentrated in London reveals report

The British Business Bank’s Small Business Finance Markets 2021/22 report highlights a surge in equity investment into London based smaller businesses.

The capital dominates equity finance in the UK, with London firms attracting 70 per cent of 2021 Q1-Q3 investment value

Over the first three quarters of 2021, £10bn was invested, a 152 per cent increase in investment value on the same period last year, already surpassing the £5.8bn seen across the whole of 2020.

Steve Conibear, UK network director, South and East of England at the British Business Bank, said: “As smaller businesses look to recovery and growth following the incredibly challenging economic climate, external finance will continue to play a critical role.

“In London, we’ve seen record growth of equity investment and through our programmes, the British Business Bank will continue to support the capital’s smaller businesses by improving access and options to secure external finance.”

Across the country, a total of £14bn was invested over the first three quarters of 2021, a 130 per cent increase on the £6.1bn invested over the first three quarters of 2020. With one quarter still to go, investment has already exceeded the £8.7bn invested in the whole of 2020.

The data shows that both demand and supply-side factors are contributing to geographic imbalances in finance flows. London businesses remain the most open to using finance compared to smaller businesses in most other parts of the UK.

In addition to the growth in equity finance, the report indicates that UK debt markets overall are returning to near pre-pandemic levels. Challenger and specialist banks accounted for just over half of the bank lending market (51 per cent).

The amount of debt held by smaller businesses has significantly increased compared to pre-pandemic levels due to businesses accessing the government’s Covid-19 emergency finance schemes. Encouragingly, however, debt repayments are becoming a smaller share of businesses cash flow as UK economic recovery helps boost their turnover

The report also indicates that Ethnic Minority-led businesses are more open to using finance and more ambitious for business growth but access to finance remains an issue. Amongst female-led businesses, appetite for using external finance has significantly increased to 31 per cent in Q2 2020-Q2 2021 but remains lower than for male-led businesses.