Half of businesses in Northern Ireland were using external finance in 2021 but economic potential continues to be wasted because of regional disparities in access to equity finance and private debt, reveals the British Business Bank’s first annual Regions and Nations Tracker published today.
- Northern Ireland businesses heavily reliant on core debt products which may impact rapid growth potential
- Distance matters – in 59% of equity investment stakes between 2011 and 2020 in Northern Ireland, the investor and company are within two hours of each other, with 44% within 20 minutes
- Rural business owners more likely to inject personal funds into their business than urban entrepreneurs because of a lack of growth finance options
Northern Ireland 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.
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, Northern Ireland accounts for less than 1% of equity investment.
Investors favour short distance deals
The report revealed evidence of a strong local funding ecosystem in Northern Ireland with the investor having an office within two hours of businesses’ headquarters for 59% of the business and investor pairings, with 44% of pairings just 20 minutes apart. Northern Ireland ranks second only to London on this metric.
The 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 the mean and median travel time in 2020. London still dominated growth finance, accounting for 62% of equity investment and 35% of private debt investment despite only having 19% of the UK’s SME population.
Companies in Belfast recorded 144 pairings out of a Northern Ireland total of 231 while Mid and East Antrim was the next most popular with 18 pairings and then Lisburn and Castlereagh with 14.
Catherine Lewis La Torre, CEO of British Business Bank, said: “The lower flows of finance in Northern Ireland 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.”
Rural business owners more pressed into injecting personal funds
Access to growth finance is particularly difficult for rural business owners who are more likely to resort to injecting personal funds into their businesses, especially in the construction sector. The report found 38% of rural construction business owners used personal funds compared to 27% of their urban counterparts. Agriculture, forestry or fishing accounts for 41% of rural businesses here in Northern Ireland, with 58% of all businesses in NI registered in rural locations.
Mark Sterritt, UK Network Director, Northern Ireland, British Business Bank said, “In Northern Ireland, equity finance from third parties such as business angels, venture capital funds and equity crowdfunding platforms is considerably rarer than core debt products.
“Despite its relative rarity, 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.
The British Business Bank’s commitment to address regional imbalances
The Bank remains committed to addressing regional imbalances in access to external finance. As such, 86% of businesses supported by British Business Bank’s programmes are based outside of London, with £943m invested between 2020 and 2021.
The Bank’s core programmes are currently supporting £81.8 million of finance in Northern Ireland, reaching 1,773 smaller businesses.
Regional fund managers also successfully secured co-investment from other Bank-delivered programmes, such as the Regional Angels Programme and the Future Fund, to best support local companies.