Where businesses are based in Britain, as much as what they do or who they know, affects their ability to borrow money, the government’s economic development agency says.
In its annual study of the use of external finance by businesses across the country, the British Business Bank found the use of credit cards, overdrafts and loans in deprived urban areas remained “significantly less” than in rural or wealthier parts of towns and cities.
It said that even though small business owners in deprived urban areas were more inclined to seek out finance to support their business plans than the average UK business, they were “more likely to be discouraged from doing so”.
• The loneliness of running a business in the regions
It said: “This evidence shows that where your business is located has an influence on your ability to access finance, not just at a regional level, but also at a sub-regional level.”
Richard Bearman, the bank’s chief development officer, said that it was increasing its supply of debt and equity capital to businesses in response.
“The problem we are trying to solve is to ensure that businesses across the UK have access to capital and where they have the potential we are supporting their potential,” Bearman said. The bank’s debt and equity support should mean that business owners “wherever they are based, if they have a high-growth, high-potential business they can access capital”.
Next April the bank launches funds totalling £340 million in the east and southeast of England, completing the roll out of similar debt and equity funds across the rest of England, Scotland, Wales and Northern Ireland. The £660 million Northern Powerhouse Investment Fund II began lending to and investing in companies across the north of England last year.
The bank has also increased access for community development finance institutions to state-backed loan guarantees. These specialist lenders service small firms in poorer areas that have been turned down by the high street banks.
Overall, the share of smaller businesses using external finance declined from 46 per cent to 45 per cent last year, following a 10 percentage point rise from 2022. The average masks variations by regions of the country, with the difference between the West and East Midlands the most stark. Some 47 per cent of businesses in the former accessed external capital last year, while only 39 per cent did so in the East Midlands. The willingness of firms in those regions to use external finance to drive future growth was even more far apart, at 49 per cent in the West Midlands and 17 per cent in the East Midlands.
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