Small business investment in the West Midlands remains resilient reflecting national trends – British Business Bank reports

In the first half of 2024, 50 per cent of smaller businesses in the region were using external finance. This marks a 2 percentage point decline from the second half of 2023, but compares well to the UK picture over the same period. The overall proportion of UK smaller businesses using finance declined from 50 per cent in 2023 to 43 per cent in Q2 2024, reflecting a challenging economic environment nationally.  

The report also finds that UK smaller businesses generally invest less than larger businesses relative to their turnover. In 2024, the report showed that smaller businesses across the UK 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 per cent) than smaller businesses (52 per cent).

Reasons for this lower level of investment by smaller businesses include a general lack of capital, and investors having less information and certainty about smaller businesses, which leads to higher borrowing costs.

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

The release of the Small Business Finance Markets report 2024/25 comes shortly after the British Business Bank announced the first anniversary of the Midlands Engine Investment Fund II, which has driven over £37m of investment into new and growing businesses across the region since its launch last year.

The Midlands Engine Investment Fund II, which also recently marked its 100th deal in the midlands offers a range of commercial finance options with smaller loans from £25k to £100k, debt finance from £100k to £2m and equity investment up to £5 million, and works with five accredited fund manager partners.

The report also showcased how the UK’s challenger and specialist banks continue to outperform the bigger traditional banks. Of the £62.1bn of gross lending to smaller businesses in 2024, £37.3bn was provided by challenger and specialist banks. Their share of gross lending (60 per cent) exceeded that of the big five UK banks for the fourth year in a row, up from 59 per cent in 2023 and the highest on record.

Vicky Mears, Director, UK Network - Midlands and North of England, British Business Bank, said: “The West Midlands is home to many ambitious entrepreneurs but barriers such as lack of awareness and limited capital are holding them back. However, 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 the economy, lift wages and improve living standards.

“The overall 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.”