Cautious optimism returns as more Yorkshire businesses use external finance

• External finance usage by businesses in Yorkshire and the Humber rose to 44% in 2023, marking a 6 percentage point increase from the previous year
• However, challenges still remain, with 55% of smaller businesses seeing more threats than opportunities in the recent landscape
• Equity deals declined across the region in 2023, but showed some signs of recovery in H1 2024

Use of external finance rebounds, but sentiment remains subduedUsage of external finance among smaller businesses in Yorkshire and the Humber saw considerable growth in 2023, with 44% of businesses now leveraging it, up 6 percentage points from the previous year. The UK economy as a whole followed a similar trend, as 46% of smaller businesses used external finance which represented a 10 percentage point rise.

Despite this uptick in the usage of external finance by smaller businesses, sentiment remains low across Yorkshire and the Humber, with 55% seeing more threats than opportunities in the trading environment in 2023. Persistent inflationary pressures are also continuing to impact smaller businesses across the region as 79% of smaller businesses reported having been impacted by rising costs over recent months.

Cautious optimism for the months ahead as equity investments stabilise While sentiment remains subdued, many smaller businesses are becoming cautiously optimistic about the months ahead. Across Yorkshire and the Humber, 31% of smaller business owners said they would be willing to use external finance to grow, up four percentage points compared to 2022. However, according to the tracker, 29% said they anticipated needing external finance in the next 12 months, a drop of 20 percentage points.

Funding levels for smaller businesses also improved across Yorkshire and the Humber in 2023. The provision of bank loans and overdrafts that were approved or increased by the top SME lenders rose by 4% in the region, with 6,000 provided. Equally, the total value increased by 8% in real terms to £956m.

This comes as equity investment across the region begins to stabilise in 2024. Yorkshire and the Humber, similar to much of the UK, experienced a relative slowdown in equity activity in 2023, with 74 announced equity deals, down 17% compared to 2022. The value of these deals also dropped by 36% to £150m.

In contrast, the first half of 2024 has shown encouraging signs of stabilisation. While deal volumes dropped by 7% to 38 when compared to the same period in 2023, deal value rebounded, increasing by 6% to £83m.

Research and development somewhat lagged behind the UK as a whole in 2023, with 33% of smaller businesses investing in R&D across the region (vs 39% nationally). Nonetheless, 36% were undertaking new-to-market innovation, noticeably above the UK average of 28%.

British Business Bank driving impact across Yorkshire and the Humber With a focus on supporting businesses outside of London, the British Business Bank has continued to deliver significant support to smaller businesses across Yorkshire and the Humber through its debt and equity finance programmes.

In March 2024, the Bank launched the £660m Northern Powerhouse Investment Fund II (NPIF II). Now extending across the entire North of England, the fund aims to drive sustainable economic growth by supporting innovation and creating local opportunity for new and growing businesses, all while breaking down traditional barriers in access to finance.

Across Yorkshire and the Humber, the Bank’s Start Up Loans programme has also continued to support ambitious entrepreneurs to start up on their own. In the year ending March 2024, 846 loans were provided across the region with a combined value of £10m.

Victoria Mears, Director, UK Network, Midlands and North of England at the British Business Bank, said: “Businesses in Yorkshire and the Humber, and indeed across the UK, have had to grapple with a more challenging economic environment over the last few years, so it’s encouraging to see some optimism returning across the region. Particularly as the provision of bank loans increased, there’s plenty of opportunity for businesses to utilise external finance to ensure they’re continually innovating and growing.

“At the British Business Bank, our commitment to supporting smaller businesses right across the UK has been unwavering. Yorkshire and the Humber is home to a thriving ecosystem of innovative businesses, and we’re poised to help them reach their full potential. With the launch of the Northern Powerhouse Investment Fund II, and our ever-growing Start Up Loans programme, we’re ensuring businesses of all sizes can access the finance they need to grow and, ultimately, drive forward economic growth.”