The appetite amongst Welsh small firms to raise external finance to support growth has fallen sharply in the face of wider economic challenges, shows new research from the British Business Bank.
The Small Business Finance Markets report from the economic development bank of the UK Government shows that in the third quarter Q3 of 2022 only 33% of UK small businesses were using external finance compared to 44% in the previously year. In Wales it declined from 48% a year earlier to just 28%.
In terms of equity deals for the first three quarters of last year the number in Wales over same period in 2021 was up by 4% to 51. However, the value of investment was down by 4% to £68m. Wales accounted for 3% of UK equity deals (by volume) and only 0.5% on total value.
The report also noted that challenger bank lending exceeded that of major banks in 2022. Some £35.5bn of bank lending came from challenger and specialist banks, a positive sign for Cardiff’s growing reputation as a hub for challenger banks where players like Tandem and Starling have significant and growing operations.
The report also shows that Wales is one of only three nations and regions in the UK to see an increase in its business population. With a 5.4% growth rate in 2022, Wales saw the highest new business birth rate, followed by Northern Ireland (3.6%) and the south west of England (2.9%).
The British Business Bank said equity finance markets are adapting to growing demand for investment in green innovation with growth in the number of net zero deals outperforming the wider equity market. These deals currently make up 12% of all smaller business equity deals compared to only 5% in 2018, with investment values rising faster.
London is the region with most net zero deals, accounting for 36% of the UK total and a third on investment value. Wales is responsible for 4% of net zero related deals and 1% of investment value (£39m).
Among the businesses securing net zero equity deals in recent years is QLM, a Cardiff-based tech firm which developed a new technology to fix methane leaks in oil and gas extraction. The funding came from the Green Angel Syndicate (GAS), which benefits from British Business Bank backing through its regional angels programme.
Jess Phillips, senior manager for Wales at the British Business Bank, said: “The new report paints a picture of economic resilience in Wales, despite increasingly turbulent economic waters across the whole of the UK.
“Overall demand for external finance has fallen; however, the equity investment in Wales shows a mixed picture with marginally increasing deal numbers, but with decreasing investment value.
“Ensuring that businesses can access the skills, support and finance is crucial to supporting economic resilience and future growth.
“The launch of our £130m Investment Fund for Wales this year will increase the supply and diversity of early-stage finance for Welsh smaller businesses, providing funds to firms that might otherwise not receive investment and help to break down barriers in access to finance.”
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Launch date for new £130m Wales fund from the British Business Bank
