New survey takes temperature of Welsh smaller business landscape

A new survey for the British Business Bank of Welsh financial intermediaries, including accountants, lawyers and small business finance advisors, working with smaller businesses has been published today.  The survey conducted by Ipsos MORI explores topics ranging from Covid-19 recovery, the supply and demand of finance, the types of finance available and the landscape for start-ups and scaling smaller businesses.

Covid recovery

• A majority of respondents in Wales felt smaller businesses would require additional finance due to the Covid-19 pandemic during the next 12-18 months
• A majority of respondents in Wales felt smaller businesses would require additional finance due to the Covid-19 pandemic during the next 12-18 months, especially debt finance (92%), followed by growth stage equity (75%) and alternative finance (75%). Early stage equity was expected to have the lowest demand (58%)

Supply and demand for finance

• 70% of respondents believed that demand for finance exceeds supply
• Respondents in Wales were less likely than the UK average to say finance supply and demand are broadly balanced (13% compared to 30% in the rest of the UK)
• Lack of awareness of finance options available (61%), access to supply of finance (53%) and aversion to taking on finance (44%) were perceived to be the top three barriers to smaller businesses demand for finance in Wales since March 2020, aside from the Covid-19 pandemic

The three factors that are perceived to be the biggest barriers to smaller business demand for finance in Wales have been revealed to be a lack of awareness of available options, access to supply of finance and an aversion to taking on finance.

Types of finance available

• Among finance intermediaries in Wales who identified gaps in the supply of finance, respondents were most likely to identify gaps in early stage equity (55%), growth stage equity (55%) and debt finance (48%), in line with UK findings.
• Only a minority of respondents in Wales felt smaller businesses were well-informed about the options or providers of all types of equity finance and alternative finance, with only 20% of respondents saying smaller businesses were well-informed about early stage equity as a finance option, and 13% saying the same for growth stage

The survey identified that generally smaller businesses have lower awareness of alternative finance, with 80% stating that smaller businesses were not well informed about early stage equity; 87% not well informed about growth stage equity; 77% not well informed about later stage equity and 53% not well informed about alternative finance options like marketplace and peer to peer lending.

Additionally, respondents in Wales who said there were gaps in the supply of finance identified early stage equity, i.e. business angels (55%), growth stage equity(55%) and debt finance, i.e. bank loans and overdrafts (45%) as the most common finance options with supply gaps, in line with UK findings.

Start-ups & scaling up

• Respondents in Wales were slightly more negative than the UK average on the adequacy of the local business ecosystem to support start-ups or smaller businesses surviving in uncertain times (36% and 39% respectively saying it was adequate).
• Respondents in Wales were more likely than the UK average to say demand for finance from start-ups (25%) and smaller businesses scaling up (33%) was weak.

Only around 36% of respondents believed that the local business ecosystem in Wales was adequate to support smaller businesses starting up who are less than two years old. However, 78% of respondents thought local support was adequate for smaller businesses who are consolidating success.

The survey also showed that demand for finance among start-ups less than two years old was generally lower in Wales than the UK as a whole (69% compared to 84%)

Mark Sterritt, Director for the Devolved Nations at British Business Bank said: “Moving out of the pandemic, it is good to see that the demand for finance from smaller businesses remains strong in Wales as we look towards a period of recovery and growth.

“We remain committed to working alongside our partners to increase awareness of finance options which may be suitable for some smaller businesses, such as equity and alternative finance.