External finance use holds steady among UK SMEs

The use of external finance among the UK’s smaller businesses remained largely unchanged in 2024, following a sharp rise the previous year, according to new research from the British Business Bank.

The Bank’s fifth Nations and Regions Tracker, published today, found that 45% of smaller businesses used external finance in 2024 — a one-percentage-point decline on 2023 — signalling stabilisation after a significant rebound the year before.

Despite the modest fall, the report suggests growing confidence among small firms. The proportion of businesses open to using external finance for growth increased by five percentage points to 38%, with stronger appetite for risk noted across the UK.

Regional trends

Northern Ireland reported the highest share of businesses using external finance (52%), while the North West and East of England recorded the strongest growth, up five and three percentage points respectively. By contrast, the East Midlands, North East and Wales saw notable declines, with falls of nine, eight and seven percentage points.

Credit cards remained the most common source of external finance (15%), followed by overdrafts (11%) and leasing or hire purchase (10%). Use of grants, overdrafts and credit cards all fell slightly — by two percentage points — compared with 2023.

Appetite for growth

The Tracker found that a growing number of small firms are willing to consider borrowing to support expansion, despite lingering caution about access to finance. Nineteen per cent of businesses that were open to seeking finance believed it would be difficult to obtain.

The West Midlands saw the most pronounced rise in openness to using finance for growth, up 20 percentage points, while Yorkshire and the Humber reported the largest increase in active finance applications or renewals, up nine points to 16%.

The BVA BDRC SME Finance Monitor also showed a shift in business sentiment, with the proportion of “Ambitious Risk Takers” — smaller firms looking to grow and willing to take risks — rising from 27% to 31% year on year.

Equity investment slows, but regional activity grows

UK-wide equity investment declined in 2024, falling 2.5% to £10.8 billion, with deal volumes down more than 15%, bringing levels close to those seen in 2018. Early data from 2025 indicates that the slowdown has continued amid wider market uncertainty.

However, investor activity outside London showed improvement. The number of unique venture capital investors per 100 high-growth enterprises outside the capital rose from three in 2023 to five in 2025 — the first time since 2017 that regional growth outpaced London.

The North West and South West both recorded increases in equity deal intensity between 2022 and 2024. The North West, in particular, bucked national trends, with deal numbers up 11% and investment value up 46%. The East of England also outperformed other regions in investment value per high-growth business, supported by strong clusters around Cambridge.

Expanding regional support

The British Business Bank said that 84% of newly supported firms in 2024/25 were based outside London, contributing an estimated £4.7 billion in additional gross value added and supporting more than 22,000 jobs across the UK.

The Bank’s total financial capacity has been increased to £25.6 billion, following a £6.6 billion commitment from the government in June 2025. This includes £350 million for new Nations and Regions Investment Funds in the East and South East of England, ensuring all parts of the UK now have access to targeted regional finance.

The Regional Angels Programme has also been expanded by £340 million, alongside new initiatives to support diverse investor networks and innovation-led enterprises.

Richard Bearman, Chief Development Officer at the British Business Bank, said: “In the face of a challenging economic environment, it is encouraging that use of external finance has remained stable.

“This year’s Nations and Regions Tracker also indicates that optimism is brewing for small businesses and we hope to see this reflected in their use of external finance in the near future.”

He added that the Bank’s expanded capacity under the Modern Industrial Strategy would help extend access to finance across the UK’s regions and nations.