Small businesses in East Midlands sees increase in equity investment value

The East Midlands benefited from a 25.5% increase in the investment value associated with equity deals involving smaller businesses, despite the overall number of equity deals falling by 14.9% compared to the first three quarters of 2023. Across the UK, half of the Nations and regions are seeing growth in the value of equity deals in 2024, despite challenging market conditions. However, the proportion of smaller businesses in the UK using finance declined from 50% in Q3 of 2023 to 43% in Q2 of 2024.

The release of the Small Business Finance Markets report 2024/25 comes shortly after the British Business Bank announced the first anniversary of the Midlands Engine Investment Fund II, which has driven over £37m of investment into new and growing businesses across the region since its launch last year.

The Midlands Engine Investment Fund II, which also recently marked its 100th deal in the midlands offers a range of commercial finance options with smaller loans from £25k to £100k, debt finance from £100k to £2m and equity investment up to £5m, and works with five accredited fund manager partners.
Smaller businesses generally invest less than larger businesses relative to their turnover.

In 2024, the report showed that UK smaller businesses invested an estimated £12.3bn, while larger businesses invested 2.25 times as much (£27.7bn), despite larger businesses contributing slightly less turnover to the economy (48%) than smaller businesses (52%). Reasons for this lower level of investment by smaller businesses include a general lack of capital, and investors having less information and certainty about smaller businesses, which leads to higher borrowing costs.

The report also showcased how challenger and specialist banks continue to outperform the bigger traditional banks with the share of gross lending1 accounting for 60%. Of the £62.1bn of gross lending to smaller businesses in 2024, £37.3bn was provided by challenger and specialist banks. Their share of gross lending exceeded that of the big five UK banks for the fourth year in a row, up from 59% in 2023 and the highest on record.

Vicky Mears, Director, UK Network – Midlands and North of England, British Business Bank, said: “This year we saw a strong increase in the value of equity investment that smaller businesses across the East Midlands are receiving which represents our significant support of the entrepreneurialism and high growth potential that these businesses are showcasing. We look forward to playing an ever more active role in supporting them as they grow and thrive.

“However, if we are to achieve the growth we all want in the UK economy, it is important that we continue to make the case for business investment which can help drive the economy, lift wages and improve living standards.

“The overall findings from this report further emphasise the need to ensure smaller businesses across the UK’s Nations and regions have better access to the finance they need to invest.”