From net zero to debt management what will shape NI firms this year?

The past 12 months have been a rollercoaster for many smaller businesses in Northern Ireland, regardless of their size.

By Mark Sterritt, UK network director, NI at the British Business Bank
Wednesday, 23rd February 2022, 7:00 am
Updated Wednesday, 23rd February 2022, 10:05 am

Between the different variants of Covid-19 emerging, ongoing restrictions, rising inflation, supply chain challenges, and a host of other developments, there has been a lot to contend with.

However, there are positives to take with the latest figures from NISRA revealing NI’s overall economic activity has recovered from the prominent reduction in output during Q2 2020 and is currently at a level not seen since mid-2008.

Latest figures (to Q3 2021) show that economic activity in NI has increased by 4.6% over the year and 1.5% over the quarter.

Mark Sterritt, UK network director, NI at the British Business Bank

Making predictions for the year ahead is a difficult task at the best of times, not least during periods of such uncertainty. Nevertheless, there are a number of financial trends we expect to see shape 2022 for smaller businesses in NI. Here are the four we anticipate playing a particularly prominent role:

Managing debt: The emergence of the Omicron variant could make for a challenging first quarter in 2022 for many smaller businesses despite positive signs that this particular strain of Covid-19 may have peaked. Managing business debt will be more important than it has ever been for smaller businesses in the months ahead, which is why we launched our guide to managing business debt in 2021.

It is important for smaller businesses to understand debt finance, how they can manage debt, improve cashflow, and take the right steps to move from survival to growth when the time is right.

Smaller businesses to focus on net zero: On the back of the COP26 United Nations climate conference in Glasgow, and a greater focus from larger companies and the public sector, we expect to see more smaller businesses push forward on reducing their carbon footprint. Our recent smaller businesses and the transition to net zero report found that smaller businesses account for around one-third – between 29% and 36% – of the UK’s greenhouse gas emissions.

While three quarters of businesses (76%) are yet to implement comprehensive decarbonisation strategies, capabilities and actions, it is encouraging to see that the vast majority (94%) say they have taken at least one action to reduce their emissions. We expect 2022 to be the year when discussion on sustainability is translated into action.

A year for equity: There is a growing sense that there is limited capacity left for smaller businesses to take on more debt over the next year, should they need it. This is bringing into focus whether alternatives, particularly equity finance, could be the right way forward for more companies looking to raise capital. Historically speaking, NI smaller businesses have been relatively averse to using equity finance.

According to the Bank’s annual Regions and Nations Tracker published in October 2021, NI is the UK’s most reliant region on core debt products including overdrafts, loans, leasing and credit cards, but equity finance and private debt can support companies with the potential for rapid growth.

Despite its relative rarity in NI, equity finance makes an outsized contribution to the economy through supporting companies with the potential for rapid growth. Companies looking to expand into, or even to create new markets as well as those looking to fuel rapid growth may be unable to secure debt finance due to their risk profile, lack of collateral or variable cash flows.

For these companies, equity investments that do not come with the need for regular repayments can create a runway to deliver on growth plans as we look to the next 12 months.

Launch your own business: The last two years have provided ample opportunities for people to think about the direction of their lives. Some have moved into their dream home while others have committed to finding a better work/life balance by creating their own business.

The spirit of entrepreneurship is alive and well in NI, so if 2022 is the year you launch your own business then the British Business Bank is here to provide the support you will need.

In September the Bank’s Start Up Loans programme marked a major milestone of £600million worth of loans delivered outside London since its launch in 2012. This included almost 1,400 loans made to NI entrepreneurs totalling over £11million. The average loan amount in NI was £8,251.

Start Up Loans provides loans for up to £25,000 at a 6% fixed interest rate per annum and offers free dedicated mentoring for 12 months and support to each business.

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