Nearly half (46%) of all East Midlands businesses were using external finance in 2021, but economic potential is at risk of being wasted because of regional disparities in access to funding, reveals the British Business Bank’s first annual Regions and Nations Tracker.
The report found London, the South East, the North West and the East of England accounted for 86% of equity investment and 69% of private debt investment despite hosting just 55% of UK businesses. By contrast, the East Midlands has accounted for just 2% of equity investments since 2011 and 6% of private debt activity in 2018 and 2019 whilst hosting 7% of the business population.
The report also reveals that the region attracts the majority of its investors from London, with half (50%) of all equity stakes in East Midlands companies involving London-based investors. 15% of equity stakes in East Midlands companies come from local investors. Companies in Nottingham are involved in the most pairings (20%), with a few other smaller clusters centred around Northampton (10%) and Leicester (6%).
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.”
The Tracker details that the UK’s uneven distribution of growth finance is not driven by a lack of high growth potential businesses in areas, but by the presence of local investors.
It shows that investors are far more likely to invest in businesses close to their office, with 82% of equity investment stakes involving companies and investors within two hours of each other and 61% within one hour of each other. The East Midlands, however, has the third highest proportion of investor-investee pairings outside the two hours travel time at 45%.
The overall 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 travel time in 2020.
The British Business Bank says it 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.
The Bank’s core programmes are supporting £369.7m into 4,702 smaller businesses in the East Midlands. The Bank’s dedicated regional fund, the Midlands Engine Investment Fund, has invested £123m in over 400 smaller businesses, while also securing an additional £126m in private sector leverage.
Dr Sophie Dale-Black, UK Network Director, Midlands at the British Business Bank, said: “The British Business Bank’s first annual Regions and Nations Tracker shows that funding disparities still remain across the UK, including in the East Midlands which has built strong links with London for attracting investment.
“We are committed to addressing these gaps in access to finance, with the Midlands Engine Investment Fund and the Bank’s other initiatives already delivering a real impact – ensuring firms have the funding they need to succeed.
“The East Midlands is home to a community of ambitious, high growth potential businesses. It is critical that these businesses are supported, with the report reaffirming the need for increased collaboration and the development of strong regional funding ecosystems.”