Smaller business appetite for external finance rises in Yorkshire and the Humber

• Usage of external finance rose to 45% among Yorkshire and the Humber smaller businesses in the first half of 2024, a rise of three percentage points
• Smaller businesses happy to use external finance for growth also increased to 38% in H1 2024, a four percentage point rise
• Equity deals dropped across Yorkshire and the Humber, with 45 deals at £107.5m completing in the first three quarters of 2024

Across Yorkshire and the Humber, 45% of smaller businesses used external finance in the first half of 2024, up from 42% in the second half of 2023. This is equal to the figures seen in the first half of 2023, and a hopeful rise from the second half of 2022, when only 36% used external finance.

This increase in usage was predominantly across the core finance types. Credit card usage fell by four percentage points to 15%, however bank loans stayed level at 10%, and overdraft usage increased one percentage point to 13%.

Unsurprisingly, business confidence across Yorkshire and the Humber also rose in the first half of 2024. 38% of smaller businesses stated they would be happy to use external finance to grow, rising from 34% in the second half of 2023 and marking the third successive half-year rise.

Despite this optimism in the market, 2024 saw a more subdued equity deals market. In the first three quarters of 2024, 45 equity deals completed across Yorkshire and the Humber, a fall of 19.6% from the first three quarters of the previous year. This occurred alongside a decline in deal value of 24.2%, at £107.5m over the same period.

Vicky Mears, Director, UK Network, Midlands and North of England, British Business Bank said: “It’s clear that conditions are not easy for smaller businesses across the UK. That’s why it’s great to see businesses in Yorkshire and the Humber having increased confidence, ultimately leading to a rise in external finance usage.

“Against the wider macroeconomic backdrop, it’s essential that smaller businesses have access to the finance they need to grow and drive forward regional economic growth. Yorkshire and the Humber has long been a hub of innovation and economic development, so it’s essential we foster an ecosystem that can continue to support this.

“That’s why it’s so encouraging to see this rise in confidence across our region, signalling that there’s still plenty of opportunity and ambition to unlock business growth. The deployment of the Northern Powerhouse Investment Fund II is further evidence of this uptick in sentiment, having already supported a number of ambitious businesses across the region.”

The proportion of smaller businesses accessing finance fell from 50% in Q3 of 2023 to 43% in Q2 of 2024, most likely due to business confidence remaining low despite some recent economic growth.

The report also finds that smaller businesses generally invest less than larger businesses relative to their turnover. In 2024, smaller businesses invested an estimated £12.3bn, while larger businesses invested 2.25 times as much (£27.7bn), despite larger businesses contributing slightly less turnover to the economy (48%) than smaller businesses (52%).

The report finds that smaller businesses who believed they have underinvested most commonly cited ‘credit being too expensive’ (58%), or that they ‘could not borrow at a reasonable rate’ (55%) as key factors for not investing in their business.

77% agreed that they would accept a slower growth rate rather than borrowing to grow, with only 7% disagreeing, suggesting a strong aversion to taking on debt for investment.

Louis Taylor, CEO, British Business Bank, said: “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 economic growth, lift wages and improve living standards.

“The diversity of supply of finance, in terms of both product and provider, is an important factor in meeting the diverse needs of the UK’s highly varied smaller business community. The increasing role for challenger banks in 2024 is an encouraging sign, as is the continued rise of asset finance.

“The findings from this report further emphasise the need to ensure smaller businesses across the UK’s Nations and regions have better access to the finance they need to invest. We will continue to support UK economic growth by helping them find the capital they need to start up, scale up and stay in the country as they realise their full potential.”