Stability in External Finance Utilization for UK Small Businesses in 2024

In 2024, external financing usage among small businesses in the UK remained remarkably stable, according to the British Business Bank’s latest Nations and Regions Tracker. More firms are showing a willingness to borrow, despite minor fluctuations in certain areas.

Key Highlights on External Finance Usage

• Overall Usage: 45% of small businesses utilized external finance in 2024, a slight decrease of just 1 percentage point from 2023.
• Regional Variations:
  • Northern Ireland: The region had the highest utilization rate at 52%.
  • North West and East of England: These regions experienced significant growth, with a rise of 5 and 3 percentage points, respectively.
  • East Midlands, North East, and Wales: These areas reported a decline in finance usage, most notably the East Midlands, which fell by 9 percentage points.

Types of Financing Used by Small Businesses

The types of external finance that small firms engaged with remained largely unchanged compared to the previous year:

• Credit Cards: Utilized by 15% of small businesses.
• Overdrafts: Accounted for 11%.
• Leasing or Hire Purchase: Taken up by 10% of firms.

However, there was a notable decline in the use of grants, overdrafts, and credit cards, each falling by 2 percentage points.

Growing Willingness to Use External Finance

Interestingly, the appetite for external finance to fuel business growth increased overall, rising by 5 percentage points to 38% across the UK. The West Midlands experienced the most substantial increase, climbing by 20 percentage points, while Yorkshire and the Humber saw a 9 percentage point rise in firms planning to apply or renew financing, totaling 16%.

Despite this optimism, caution remains prevalent, with 19% of firms expressing concerns regarding the difficulty of obtaining finance.

Shift in Risk Tolerance Among SMEs

The SME Finance Monitor indicates a growing willingness to take risks, with the proportion of “Ambitious Risk Takers” increasing from 27% in 2023 to 31% in 2024.

Decline in Equity Investment

While small businesses express more readiness to borrow, equity investment has faced a downturn, dropping by 2.5% to £10.8 billion, with deal numbers also falling by 15.1%. Early indicators for 2025 suggest that this trend may continue.

Positive Growth in Venture Capital Outside London

In a notable shift, the number of venture capital investors outside London per 100 high-growth firms rose from 3 in 2023 to 5 in 2025. Regions like the North West and South West are beginning to close the investment gap with the capital, thanks to an 11% increase in deals and a remarkable 46% rise in investment value in 2024.

Notable Investment Areas

• East of England: This region leads in investment value per 100 high-growth firms, largely driven by tech hubs like Cambridge. In 2024, the Cambridge and Peterborough mayoral authority area reported 82 deals valued at £748 million, the highest outside Greater London.

Continued Support from the British Business Bank

The British Business Bank remains committed to supporting smaller firms, particularly those outside London. In 2024/25, 84% of new business support was concentrated outside the capital, projected to generate £4.7 billion in gross value added (GVA) and support around 22,100 jobs across the UK.

The Bank is expanding regional financing, with the UK government pledging an additional £6.6 billion in June 2025, raising the total capacity to £25.6 billion. This funding includes £350 million directed towards new investment funds in the East and South East and an additional £340 million for the regional angels program, which has seen record activity in 2024/25.

A Message from the British Business Bank

Richard Bearman, Chief Development Officer at the British Business Bank, remarked, “In the face of a challenging economic environment, it is encouraging that the use of external finance has remained stable. This year’s Nations and Regions Tracker indicates a burgeoning optimism among small businesses, which we hope will be reflected in their future financing usage.”

He emphasized the Bank’s role in providing vital financing access to businesses across regions, stating, “With the expanded capacity under the Modern Industrial Strategy, we’re well-positioned to enhance our existing efforts across the nations and regions, including the newly established investment funds for the South East and East of England.”

By maintaining an awareness of trends in external finance usage and supporting small businesses with accessible funding, the UK can foster a more robust and resilient economic environment for its enterprises.