British Business Bank research finds equity investment in small businesses has more than doubled over the past three years, supported by Government action

A new report by the British Business Bank provides an upbeat assessment of the market for small business equity finance.

It finds strong year-on-year growth in the use of external equity finance by small businesses: the number of deals completed in the first three quarters of 2014 was up by 170% compared to the same period in 2011, whilst the amount of investment increased by 125%.

But the report also identifies gaps in the availability of equity finance, including for more capital-intensive growing businesses before they are fully established.

The report makes a number of commitments and recommendations to strengthen the availability of equity finance in the UK further, including:

  • The British Business Bank will invest the £400m of new funding announced at Autumn Statement over the next three years in venture capital
  • The Bank will create a step-change in information available on the levels of equity finance in the UK by producing a regular ‘tracker’ of small business equity investment in the UK
  • The report recommends that the time is now right for institutional investors to look again at investing in funds targeted at small businesses
  • The report encourages a wider debate on the availability of ‘patient’ capital to support the sustained growth of small businesses which make longer-term capital intensive investments
  • As announced recently by the Prime Minister, the Bank will deliver the pilot for the “Help to Grow” scheme, investing £100m in ‘growth loans’ for high-potential businesses.

Business Secretary Vince Cable said:

“I set up the British Business Bank two years ago to enable businesses to access alternative forms of finance which the big banks are currently falling short on.

“The availability of long term finance has been a longstanding problem, but this new report shows how we have opened up access to equity finance. The British Business Bank will play an increasingly important role in filling in the remaining gaps, including investing £400m in venture capital over the next three years.

“But the Bank cannot fill these gaps by itself. Institutional investors should also consider investing in funds targeted at small businesses.”

Keith Morgan, CEO of the British Business Bank, said:

“Equity and other types of growth finance are a small but disproportionately important part of the UK economic landscape. As confidence among smaller businesses strengthens, the British Business Bank is committed to increasing the supply of finance to help these businesses grow.”