Manchester, Liverpool and Cheshire East dominate North West finance market, while stark regional disparities hinder economic potential
The region accounts for 4.2% of total UK equity investments
- The region accounts for 4.2% of total UK equity investments, a stretch away from the 62% accounted for by London
- Manchester, Liverpool and Cheshire East account for 53% of all equity deals within the region since 2011
- Distance matters – in 51% of equity investment stakes in North West companies between 2011 and 2020, the investor and company are within two hours of each other in the region
- Rural business owners more likely to inject personal funds into their business than urban entrepreneurs because of a lack of growth finance options
42% of businesses in the North West were using external finance in 2021, but economic potential continues to be wasted because of regional disparities in access to equity finance and private debt, reveals the British Business Bank’s first annual Regions and Nations Tracker published today.
Core debt products including overdrafts, loans and credit cards are the most used forms of business finance in all regions and nations of the UK, but equity finance and private debt can support companies with the potential for rapid growth.
Manchester, Liverpool and Cheshire East are the epicentres of the equity ecosystem in the North West in terms of recipient businesses, accounting for 31%, 11% and 11% respectively - compared with zero equity deals happening in Blackpool and Barrow-in-Furness.
Uneven spread of equity finance
The report highlighted the lack of uptake of equity funding in Northern regions. The North West saw the most investment, accounting for 5.7% of UK equity deals in 2020, yet this was lower than its share of the UK business population (9%). In contrast, London accounted for 47.2% of equity deals and 19% of the business population. Manchester was identified in the top 20 local authorities in the UK for equity activity, accounting for 2% of all UK deals between 2011 and 2020.
Catherine Lewis La Torre, CEO of British Business Bank, said: “The lower flows of finance in certain regions and localities reflect a population of businesses operating with fewer choices. These gaps in growth finance are undoubtedly holding back ambitious entrepreneurs and lead to wasted economic potential. This is something the British Business Bank is committed to changing.”
Investors favour short distance deals
The report revealed evidence of a strong local funding ecosystem in the North West, with the investor having an office within two hours of businesses’ headquarters for 51% of the pairings. In contrast, the closest office of 30% of investors investing in the North West was in London
The preference for short distance deals has not been impacted by the increase in remote working due to Covid-19, the data shows only a slight uptick in the mean and median travel time in 2020.
Rural business owners more pressed into injecting personal funds
Access to growth finance is particularly difficult for rural business owners who are more likely to resort to injecting personal funds into their businesses, especially in the construction sector. The report found 38% of rural construction business owners used personal funds compared to 27% of their urban counterparts.
The report argues that investors with a local presence are critical to the success of UK equity ecosystems. The data shows a clear positive correlation between equity deals per high-growth business, and the strength of the local investor base.
The British Business Bank’s commitment to address regional imbalances
The Bank remains committed to addressing regional imbalances in access to external finance. 86% of businesses supported by British Business Bank’s programmes are based outside of London, with £943m invested between 2020 and 2021.
In the North West, the Bank’s core programmes are supporting £693.1m of finance, reaching 7,639 smaller businesses
Across its regional funds, a record deployment of £357m of finance was recorded this year principally due to a strong second half of 2020/21. Since its launch, the £500m Northern Powerhouse Investment Fund (NPIF) has invested more than £256m into 840 SMEs, with £310m in private capital leveraged alongside.
Regional fund managers also successfully secured co-investment from other Bank-delivered programmes, such as the Future Fund, to best support local companies.