Demand for small business finance exceeds the level of supply across Scotland, study finds

Demand for small business finance exceeds the level of supply across Scotland, study finds

Mark Sterritt

Smaller businesses in Scotland are likely to struggle to access the level of funding and investment needed to support growth, according to a new survey published by the British Business Bank.

The Bank’s latest research conducted by Ipsos MORI found that the vast majority (84%) of the Scottish business advisory community, of accountants, lawyers, and business finance advisors, surveyed believe there are gaps in the supply of finance throughout all stages of company growth and development. Nearly three-quarters (71%) said the demand for finance outweighs the level of supply.

Respondents also said small businesses in general will require additional finance over the next 12-18 months due to the Covid-19 pandemic. Of those surveyed, 86% in Scotland said smaller businesses would require additional debt finance and 79% said the same about growth stage equity or venture capital.

Anticipated demand for additional early-stage equity investment over the next 12-18 months was found to be significantly higher in Scotland (81%) than the rest of the UK (68%), and 79% also agreed that small businesses would require additional growth stage equity or venture capital due to the Covid-19 pandemic.

Scotland’s business advisory community is, however, significantly more likely than the UK average to say that the local small business finance ecosystem offers adequate support for start-ups (63% vs. 45%) and smaller businesses surviving in uncertain times (65% vs. 48%).

Mark Sterritt, UK network director, Scotland at British Business Bank, said: “Scotland has a rich community of ambitious smaller businesses and access to the right kind of finance plays a crucial role in their growth and development at every stage, from start-ups to well-established companies. Throughout the last 18 months, we have witnessed first-hand the importance of supporting smaller businesses, and it is unsurprising to see an anticipated need for additional finance to support their continued recovery.

“Increased borrowing during the pandemic has perhaps contributed to the rising demand for early and growth stage equity, with some businesses unlikely to be in a position to take on additional debt finance. That said, we have already seen a record-breaking first quarter for small business equity investment across the UK, with £90.9 million invested in Scotland as the economy recovers and investor confidence begins to pick up.”

Respondents, on the whole, perceived Scottish smaller businesses to have relatively low awareness of the equity finance and alternative finance options available to them, with debt finance the only finance option which respondents felt businesses were well-informed about (62%, compared to 48% for early-stage equity, 43% for growth stage equity, 38% for later stage equity and 43% for alternative finance options).

Mr Sterritt added: “Our aim is to encourage and support smaller businesses to access and seek the finance best suited to their needs, but we understand that the small business finance landscape can be complex and difficult to navigate. To help Scottish entrepreneurs and business owners learn more about the options available to them, we have created an online finance hub and interactive finance finder which provides more information and independent advice.”

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