Investment in smaller Scottish businesses rebounded sharply in 2021 relative to the first year of the pandemic in 2020, with demand for finance “robust”.
New research from the British Business Bank found that equity investment in Scottish SMEs reached £403 million during the nine months to the end of September, more than double the same period a year earlier. Nearly a third of firms surveyed for the bank’s eighth annual Small Business Finance Markets report said they would be happy to use finance to grow their business.
There were a total of 147 equity deals recorded in Scotland during the first three quarters of 2021, equating to 8 per cent of the UK’s equity deal activity – higher than Scotland’s 6% share of the business population. The number of unique investors across the country’s local venture capital sector rose to 65, nearly double the 33 identified in 2017.
Founded in 2014, the British Business Bank is backed by the UK Government with a remit to increase the supply of credit to SMEs. It has a range of programmes in place to help plug regional funding gaps, and is currently working on setting up a new £150m fund for Scottish businesses.
“Last year saw the Scottish business community focusing on recovery, with both investor confidence and demand for finance picking up accordingly,” said Mark Sterritt, the bank’s network director in Scotland. “As illustrated in the latest figures, it was a particularly strong year for equity investment in smaller businesses, with the value of deals in 2021 significantly ahead of 2020 by the end of the third quarter.
“This year will hopefully see more of a return to normality and continued economic recovery, which should lessen the impact of debt repayments on smaller businesses. That said, there may be additional economic issues to contend with in the form of energy price increases and supply chain pressures.”
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Total investment values increased by 141% compared to the first nine months of 2020 and were already 42% ahead of the £283m registered for the full year. Across the UK, overall equity investment was on track to double from the £8.8 billion seen in 2020.
Challenger and specialist banks accounted for a record share of 51% of bank lending across the UK, up from 32% in 2020.
The amount of debt held by smaller businesses has significantly increased due to businesses accessing the government’s emergency Covid finance schemes, with debt stocks up 30% at their peak in March 2021. However, the bank said debt repayments are becoming a smaller share of businesses cash flow as UK economic recovery helps boost their turnover.
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