The British Business Bank’s Small Business Finance Markets 2024/25 report, published today, reports that Wales saw a 14.3% fall in announced equity deal numbers and a 45.7% fall in investment value during the first three quarters of 2024, relative to the same period in 2023.
In total 48 equity deals were completed between Q1 and Q3 2024, with an investment value totalling £54.9m. This decline in deal numbers in Wales mirrors much of the wider UK trend, where equity deals decreased across all Nations and regions but the North East of England.
However, investment value data was more positive across the UK as a whole, with half of the Nations and regions experiencing an increase in investment, despite the fall in deal numbers, when compared to Q1-Q3 2023, including London, Scotland, the North West, North East, East of England and East Midlands.
Investment by smaller businesses remains low
UK-wide 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. This reflects a challenging economic environment in the UK – 2024 saw growth in the UK at 0.9%, but GDP level was only 3.2% above the pre-pandemic level in 2019 (the second lowest in the G7).
Despite the national trend for declining finance usage, Wales showed a relatively stable trend that continued into the first half of 2024, showing sustained recovery after a prolonged period of decline in finance use in 2022.The proportion of smaller businesses in Wales using external finance was 53% in H1 2024, broadly in line with the finance usage rate seen in H2 2023 (54%). Meanwhile, the share of businesses that would be happy to use external finance in order to grow increased from 24% to 31% over the same period.
Access to finance is particularly crucial for innovation active smaller businesses in Wales
The report finds that access to external finance is most vital to businesses that are innovation-active, since these are consistently more likely to have applied for, sought or considered finance recently than their innovation-inactive counterparts.
54% of innovation active small businesses in Wales considered or secured external finance in the past three years, compared to just 18% of innovation inactive firms – the largest percentage disparity in the UK – highlighting the strong link between finance accessibility and innovation-led economic growth in Wales.
Highly deprived areas in Wales show more ambition for growth through external finance
Smaller businesses in highly deprived areas of Wales demonstrate strong growth ambitions, with 44% aiming for significant expansion compared to 32% in less deprived areas.
However, these businesses face greater barriers to securing finance, with lower confidence in obtaining funding from banks (47% vs. 51% elsewhere) and a higher likelihood of seeing finance access as an obstacle (9% vs. 7%). Additionally, awareness of alternative finance options, such as venture capital, remains lower in these areas, highlighting the need for improved financial education and support.
Challenger and specialist banks continue to outperform the bigger traditional banks
For the fourth consecutive year, challenger and specialist banks account for a higher share (60%) of total gross lending[1] than the big five banks (40%) – the highest on record.
The lending landscape has changed considerably since 2014, with the British Business Bank report revealing that 60 new banking licences have been granted in the last decade, with 36 being issued to providers serving smaller businesses.
Several of these banks, including Starling and Monzo, have established significant bases in south Wales in recent years, joining an established FinTech community, with the region becoming well known as a hub for challenger bank activity.
Susan Nightingale, Director, UKN Network, Devolved Nations at the British Business Bank, said: “It is clear that conditions continue to be tough for smaller businesses, with some domestic uncertainty meaning many were less willing to invest with confidence in 2024. In Wales we are certainly experiencing these challenges, and while equity deal numbers and investment values are tracking more strongly against the national average than many other Nations and regions, there’s no doubt that the data is going in the wrong direction, when it comes to meeting our growth ambitions.
“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, for which Wales is a significant base, is an encouraging sign, as is the ongoing roll out of the Bank’s £130m Investment Fund for Wales, where the strong equity element will make a significant impact on the Welsh smaller business landscape in the months and years to come.
“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 providing them with the capital they need to start up, scale up and stay in the country as they realise their full potential.”
