Smaller businesses are the lifeblood of Scotland’s economy. Firms employing fewer than 50 employees account for more than 98% of the total business population, 42.7% of employment, and 27.3% of revenues, according to Scottish Government figures, underlining the vital role they have to play in helping the nation prosper.

As such, ensuring smaller firms have access to the financial support they need is absolutely critical. Access to the right type and amount of funding can help smaller businesses take the next step in their plans, whether they are looking to take on new staff, expand their premises or product range, or even grow into new markets.

Every year, one of trends the British Business Bank’s Small Business Finance Markets report tracks is equity investment into smaller businesses, along with their attitudes towards and experience of external financial support across the UK. Through these metrics, we gain a sense of the health and confidence among these firms.

Our 2024/25 report, covering the first three quarters of last year, found that Scotland’s smaller businesses saw a 14.2% rise in equity investment volumes to £407 million – more than double the UK-wide increase of 6.6%. This also meant Scotland was on track to deliver the third highest annual figure for equity investment in the last decade, behind only the exceptional years of 2021 and 2022.

The picture was similarly positive in terms of deal numbers. While a slight decline of 1.5% may seem negative at face value, it was the second-best performance of any UK nation or region. Only the North East of England delivered a positive year-on-year difference and the resilience in the number of deals meant Scotland was behind only London, with 135 compared to the South East’s 107 in third.

It was a similar story when it came to use of external finance more generally. A challenging economic environment was undoubtedly a significant contributor to a drop from 59% in H1 2023 to 41% during the same period last year among Scotland’s smaller business population. However, this was still the second highest rate between 2021 and 2024, indicating a return to more normalised levels after 2023’s spike.

The healthy level of activity, despite an uncertain macroeconomic backdrop, is reflected in what we saw in the first year of our £150 million Investment Fund for Scotland (IFS). In that time, the fund committed more than £10 million to smaller Scottish businesses, including the likes of Wilsons Pet Food in Ayrshire, Roslin biotech firm Ingenza, and Borders-based Sky-Pin Drones.

The IFS has been specifically designed for Scotland to increase the availability and supply of finance to all parts of the nation. Loans range from £25,000 to £2 million, while equity investments reach up to £5 million, to help smaller businesses take the next step forward with their plans.

It is highly encouraging to see Scotland performing so well – particularly given how integral smaller businesses are to its economy. With interest rates on a downward trajectory, financing conditions are improving and that should create a more supportive environment for deal-making during 2025. But, for now, the quantity and value of equity deals demonstrates the resilience of Scotland’s smaller business community, as well as the strength of financial ecosystem that supports it.

Susan Nightingale is director, UK network, devolved nations at the British Business Bank