New figures out today (March 1) have revealed a funding crisis for smaller North East businesses.

The British Business Bank’s Small Business Finance Markets 2023/24 report highlights a sustained drop in small business equity investment across the region, as businesses completed 37 equity deals in Q1-Q3 2023, a 43% decrease compared to the equivalent period in 2022

The total investment value also fell, declining by 69% to £46.8m.

However, this comes at a time when the investment gap between London and the rest of the UK is closing. In Q1-Q3 2023, the capital accounted for 46% of all equity deals, a four percentage points drop from the same period in 2022.

While the North East accounted for only 2% of all small business equity investments in Q1-Q3 2023, the Northern economy (North East, North West and Yorkshire and the Humber) collectively contributed 12% of all UK deals.

Sophie Dale-Black, UK Network Director for the North of England, British Business Bank, said: “It has been a slow year for equity investment in 2023 for the UK as a whole and this has brought significant challenges for businesses both nationally, as well as in the North East. The North East remains resilient and the small business community is continuing to support the regional economy.

“The new £600m Northern Powerhouse Investment Fund II is set to launch in March, and will include the whole of the North East region, meaning the British Business Bank will be able to extend its reach to smaller businesses across the whole of the North of England.”

The NPIF launched in 2017 and has delivered more than £1.1bn of direct and private co-sector investment into 1,295 businesses. Despite investment activity slowing down across the nation, the Bank says it remains committed to the small business community in the North by launching NPIF II.

The Northern Echo: Sophie Dale-Black, British Business BankSophie Dale-Black, British Business Bank (Image: British Business Bank)

Across the UK, smaller businesses raised £6.5bn of equity finance over the first three quarters of 2023, 53% less than during the same period in 2022.

After two exceptional years, this brings such investment to around the level it was in 2020, still the fourth-highest year on record. While there was a sharp decline in activity in the second half of 2022, investment now appears to be stabilising at around £2bn per quarter in 2023.

Later stages of the UK equity finance market have continued to experience the largest reductions in investment. Growth-stage investment in the first three quarters of 2023 was £2.4bn, 65% lower than the same period in 2022. Venture and seed stage investment fell by 43% and 31% in 2023, respectively.

The growth stage was the main driver of market expansion over 2021 and the first half of 2022, and subsequently has also experienced the largest drop in both percentage and absolute terms since market conditions have worsened from the second half of 2022 onwards.