The number of smaller businesses in Northern Ireland using external finance has been steadily climbing since the second half of 2022 according to research by the British Business Bank.
Published today, the Small Business Finance Markets 2024/25 report reveals the percentage of smaller businesses in Northern Ireland using finance remains high, having grown slightly from 53% in H2 2022 to 54% in H1 2024.
This is in contrast to the UK as a whole which has seen finance use fall back from 50% in Q3 2023 to 43% in Q2 2024. This was most likely due to business confidence remaining low despite some recent economic growth.
These statistics reflect a challenging economic environment in the UK – 2024 saw growth in the UK at 0.9%, but GDP level was only 3.2% above the pre-pandemic level in 2019 (the second lowest in the G7).
Also, in Northern Ireland there has been a sharp decline in the number of businesses happy to use external finance in the first half of 2024 with a decrease to 41% from 50% in the second half of 2023.
Credit cards and overdrafts remain the most common forms of finance for smaller businesses
Credit card financing continued to be the most popular finance type across the UK in 2024, although usage declined slightly from 20%% of smaller businesses in H2 20231 to 13% in H1 2024. In Northern Ireland there was a three percentage point decline to 17%.
Bank overdrafts were the second most popular form of finance for much of this period, also experiencing a decline to 12% in H1 2024, from 14% in H2 2023. Again, in Northern Ireland there was a decline, this time a six percentage point reduction to 10%.
When it came to bank loans in Northern Ireland, 16% of firms here were using this facility to provide business finance in H1 2024. This represents a six percentage point increase on H2 2023, while there was also a six percentage point increase in the number of smaller businesses using leasing/hire purchase/vehicle finance.
Equity activity declined in Northern Ireland in the first half of 2024, both in terms of deal numbers and investment value
Equity investment in Northern Ireland experienced a downturn in the first three quarters of 2024, with a 29.4% decline in the number of deals taking place here and a 34% reduction in their value relative to the same period in 2023.
Across the UK, the number of smaller business equity deals in the first three quarters of 2024 fell 24% compared to the first three quarters of 2023. Despite this, the value of deals showed a year-on-year increase of 7%% for the same period.
Exits from venture capital-backed businesses performed very strongly in 2024, however, with £10.4bn of total value from exits.
This represented a 100% increase on 2023 (£5.2bn), driven by a particularly strong second half of the year, and was due to an increase in the valuations of the individual businesses, with the number of exits remaining largely the same (215 in 2024 versus 211 in 2023). This could suggest early signs of an upturn in this area of the market.
Susan Nightingale, Director Devolved Nations, British Business Bank, said: “It’s clear that conditions are hard for smaller businesses both in Northern Ireland and across the UK. In Northern Ireland there is evidence of resilience within the smaller business community and it is encouraging to see the steady increase in the use of external finance, including options like the Investment Fund for Northern Ireland.
“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. “
High cost of credit and risk aversion are key factors behind the lack of investment for smaller businesses
The report finds that UK smaller businesses who believed they have underinvested most commonly cited ‘credit being too expensive’ (58%), or that they ‘could not borrow at a reasonable rate’ (55%) as key factors for not investing in their business.
77% agreed that they would accept a slower growth rate rather than borrowing to grow, with only 7% disagreeing, suggesting a strong aversion to taking on debt for investment.
Challenger and specialist banks continue to outperform the bigger traditional banks
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 (60%) 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.