Demand for external finance in Northern Ireland outstrips rest of UK

A new report by the British Business Bank has shown that the demand for external finance among Northern Ireland’s smaller businesses outstripped the rest of the UK in the third quarter of 2022.

The Bank’s Small Business Finance Markets report revealed demand for external finance across the UK has seen a considerable drop, with equity investment activity also slowing, but challenger bank lending has exceeded that by the major banks in 2022.

However overall use for external finance among NI smaller businesses increased significantly from 45% of smaller businesses during Q3 2021 to 56% in Q3 2022, the only UK nation or region to see a rise.

Across the UK, only 33% of small businesses using external finance in the third quarter of 2022, compared to 44% the year prior.

The Bank’s annual Small Business Finance Markets report outlined 23 announced equity deals were completed during Q1-Q3 2022 in NI, down by 28% on the same period in 2021. Investment values also dropped by 35% in this period to £43m.

When it came to equity deals in net zero business sectors in NI, the report revealed the total value of these since 2018 until Q3 of 2022 is just over £8.5m. This equates to just a 1% share of the UK’s net zero equity deals during this time.

Giving context to the statistics, the Bank’s Business Finance survey, carried out by Ipsos MORI, revealed that almost half (49%) of NI-based businesses that said they prioritise environmental sustainability perceived the current economic conditions as the main obstacle to achieving that objective in the next 12 months.

Among the businesses securing net zero equity deals has been SustainIQ which has received equity funding from four private investors and the Bank-supported Co-Fund NI.

SustainIQ assists businesses in meeting their ESG commitments by measuring and reporting on their social, economic and environmental impacts.

However, in 2022 NI recorded the second highest increase in business population of all the UK’s nations and regions. This 3.6% growth followed on from 2021 when NI experienced the highest decline across the UK when the business population contracted by 16.6%.

Susan Nightingale, UK network director, NI at British Business Bank, said: “We know it is a challenging economic climate for many smaller businesses and this has been underlined by the findings in the Bank’s Small Business Finance Markets report.

“Smaller businesses are adapting to these conditions as they reduce their use of external finance. Our Business Finance survey undertaken by Ipsos Mori showed that eight out of 10 of those surveyed in NI had not sought any external finance for the past three years.

“We know external finance helps businesses to start up, to grow and manage the challenges of trading towards recovery. We are committed championing sustainable growth, and to backing increased investment in innovation such as in net zero sectors.

“The launch of our £70m Investment Fund for NI this year will increase the supply and diversity of early-stage finance for smaller businesses, providing funds to firms that might otherwise not receive investment and help to break down barriers in access to finance.”

The Investment Fund for NI will offer a range of commercial finance options with loans from £25,000 to £2m and equity investment of up to £5m.