british-business-bank.co.uk
Regions and Nations
Tracker: Small Business
Finance Markets 2021
2
Contents
Foreword
3
Executive summary
6
Introduction
10

Part A
Regions and nations market overview
12
Investor networks
19
Finance for rural businesses
45
The British Business Bank across the UK
57

Part B
Regions and nations finance data
62
Foreword
For businesses and entrepreneurs of all
backgrounds and ambitions, securing the
right type of external finance can be the
difference between success and failure.
From finance that helps to get ideas off
the ground, to later-stage investment that
unlocks rapid growth, such funding is a vital
ingredient for the continued success of UK
businesses and the wider economy.
Businesses in all parts of the UK should be
able to tap into this essential resource
equally, but this is not always the case.
Lower flows of finance in certain regions
and nations mean that their populations of
entrepreneurs and businesses operate with
fewer choices.
This report, our first Regions and Nations Tracker, sets
out to analyse smaller business finance markets across
the UK, shedding light on how they work and where they
might not be working so well. Tackling regional
imbalances is a long-term priority for the British Business
Bank and the government, forming a key part of
delivering the economic recovery for the whole country.
One of the primary findings of the report is that
important forms of growth finance, such as private debt
and external equity investment, are unevenly distributed.
This holds true both between regions of the UK and
within them, right down to a local level. At local authority
level there is a striking degree of concentration in equity
activity, for example, with the top 20 local authorities
accounting for 58% of all deals since 2011.
Geography also remains a key determinant in influencing
equity investor activity, with the investor and the investee
company within a radius of two hours travelling distance
of each other in more than 80 percent of equity stakes.
Although Covid-19 has driven an increase in remote
working, this has not yet changed investors’ preferences
for proximity to the companies they invest in.
The presence of local investors is therefore critical
to the success of UK equity ecosystems, with a clear
positive correlation between equity deals per high-growth
business and the strength of the local investor base.
The report groups the UK’s regions and Nations into
three main categories: those that are self-contained,
with a strong local investor base; those that are heavily
reliant on London-based investors; and mixed
geographies with some local investor strength but still
reliant on investors outside the region or Nation.
Ultimately, the majority of equity activity takes place in
the first 'self-contained’ category, with London the
driving force for this. This is something that the Bank has
recognised through our Regional Funds and Regional
Angels Programme. Our Regional Funds bring new fund
managers into parts of the UK to invest where finance is
lacking, while our Regional Angels Programme invests
Foreword
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alongside established angel syndicates to boost them
and the businesses they support. 86% of businesses
supported by our core programmes – 81,000 businesses
– are based outside of London, while our Regional Funds
saw record deployment this year, providing a combined
£357m flow of finance into regional finance markets.
As well as bringing equity and other forms of growth
finance to under-served areas through our role as a
market participant, we aim to spur activity through data
and research. In recent years we have collaborated
with private debt funds to gather data on this important
form of finance and have published the most
comprehensive analysis of UK venture capital returns
available. The latter found stronger returns from funds
located outside the ‘Golden Triangle’ of London,
Cambridge and Oxford, highlighting the opportunities
available outside traditional equity hotspots.
Beyond equity, this report highlights how core debt
products such as overdrafts and loans are most often
smaller businesses’ choice to meet their finance needs,
which vary from business to business and from place
to place. This is particularly illustrated by the different
patterns of finance use for rural businesses and
their urban counterparts. A greater proportion of rural
businesses than urban businesses used external finance
in 2020, for example, and a greater share of rural
business owners also injected personal funds into their
business because they felt they had no other choice.
Understanding these patterns and needs is vital to
delivering the British Business Bank’s mission which is
to drive sustainable growth and prosperity across the
UK, and to enable the transition to a net zero economy,
by supporting access to finance for smaller businesses.
We know, however, that we will only reach this
understanding with the help of others. Consequently,
we hope this yearly report will stimulate thought and
feedback from businesses, the finance community and
all those with a stake in the UK economy. We remain
committed to the important objective of tackling
regional imbalances so that together we can create
greater demand and more opportunities to access
finance in every region and Nation of the UK.

Catherine Lewis La Torre
CEO, British Business Bank
Foreword
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Executive summary
External finance can be an important tool
for businesses at all stages of development.
Whether borrowing funds to start up, securing
investment to expand or establishing working
capital facilities to manage the uncertainties
of trading, external finance can give
entrepreneurs and businesses options they
wouldn’t otherwise have.
External finance is an important tool for
businesses, but it is not evenly spread across
the UK
More than four in 10 SMEs were using external finance in
early 2021. Core debt products, such as overdrafts,
loans and credit cards, are the most used form of
external business finance in all regions and nations of the
UK. Even though core debt products are the most widely
used, less common forms of finance such as equity and
private debt matter too. These can make outsized
contributions to economic growth through supporting
companies with the potential for rapid growth.
It is these rarer forms of finance that are the most
unevenly spread. Since 2017 there has been more
than £6bn of equity investment into UK SMEs every
year, reaching a record of £8.8bn invested in 2020.
This activity, however, is strongest in London reflecting
longstanding trends that mean UK equity investment
is substantially more regionally concentrated than the
underlying business population.
The largest four regions within the UK, London, the
South East, the East of England and the North West,
host 55% of the business population but take in 86% of
equity investment. These areas also outperform on
private debt, attracting 69% of investment.
The imbalances in these important forms of growth
finance are not just between regions and nations but
within them too. Since 2011, Westminster has had more
than 1,000 SME equity deals while 50% of the UK’s
374 local authorities have had fewer than 10 during this
period and 70% fewer than 20.
Gaps in finance lead to wasted economic
potential, so we need to understand the
geographic factors behind them
Although London, the South East, the East of England
and the North West outperform the rest of the
UK in attracting important forms of growth finance,
their share of high growth businesses is unremarkable.
55% of high growth businesses were in these four
regions between 2018 and 2019, a share that exactly
matches the proportion of the general business
population to be found.
This is important because it means that the UK’s uneven
patterns of growth finance are not driven by certain
parts of the UK being dead zones for ambitious
businesses that achieve rapid and sustained growth.
Given that business quality does not appear to be the
prime driver for imbalances in growth finance,
understanding which factors do play a role is vital.
This is because, through the Bank’s programmes and
beyond, we have evidence that external finance,
and particularly growth finance, can help companies
achieve their potential, generating prosperity for owners
and employees alike. In parts of the UK where this
finance is lacking, there are populations of entrepreneurs
and businesses operating with fewer choices that
undoubtedly hold them back.
Executive Summary
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Distance matters, even in a business world
that has embraced remote working
In aiming to understand the factors that do play a role in
the UK’s geographic imbalances in finance, we have
undertaken some new analysis of distances between
equity investors and the companies they invest in. Our
analysis draws on more than 14,500 equity investments
since 2011 and finds that in 82% of instances, the
investor has an office within two hours travel time of the
company they are backing. In 61% of instances, the
proximity is even closer and the two parties can travel
between their premises in one hour or less.
Despite the dominance of relatively short-distance
deals, there are strong investment links between
different parts of the UK. As may be expected, London-
based investors are the biggest source of external
capital so proximity to London matters for the rest of the
UK regions and nations. Proximity to London, however,
is important to varying degrees as certain parts of the
UK are much less London-reliant than others and boast
of thriving local investing communities.
One such example is the North East where we find that
two thirds of the domestic investors in North East
businesses are also based in the North East. Newcastle
in particular is a key location for the North East
ecosystem hosting 42% of the domestic investors into
North East businesses.
At the other end of the scale, the East Midlands is one of
the most London-reliant parts of the UK. Our analysis
finds that 50% of the UK-based backers of East
Midlands companies operate from the capital with fewer
than two in 10 actually in the East Midlands.
Drawing investment from investors based elsewhere is
certainly not a bad thing and indeed we may expect that
over the period covered by this analysis, distant deals
have become more prevalent through the opportunities
for remote communication afforded by technology. This,
however, is not the case, even in 2020 when lockdowns
enforced remote working for sustained periods. Instead,
the average travel time between investors and investees
has shortened since 2011 and stood at just 70 minutes
in 2020.
With investment becoming somewhat more local over
the last ten years, it is not surprising that regions and
nations with comparatively strong local investor bases
tend to have more equity activity relative to their
economic scale than elsewhere. For example, in the
North East, where the investor base is relatively strong
there are 16 equity deals for every 100 high growth
businesses. Conversely in the East Midlands where local
investors are involved in a much lower share of deals
there are only four deals per 100 high growth businesses.
Rurality matters too, with rural businesses
seemingly more pressed into injecting
personal funds
Distance isn’t the only geographic factor that can help
explain patterns of finance use, whether a business
operates in a rural or urban location also appears to play
a role. This is not a fringe issue because rural businesses
make up a sizeable proportion of the business stock in
each of the UK nations.
Executive Summary
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In each nation of the UK, rural firms are important.
In England and Scotland, 23% of registered businesses
are based in rural locations while the proportions sit
at 45% and 58% for Wales and Northern Ireland
respectively.
These rural businesses were using external finance in
greater proportions than urban businesses in 2020.
Around 39% of rural firms were currently using a form
of external finance compared to just 36% of urban
businesses, a pattern that appears to hold for
businesses across the size spectrum and across most
broad sectoral groups.
There are several forms of finance that rural firms used
in greater proportions than their urban counterparts
in 2020. The biggest gaps were seen for overdrafts,
leasing and hire purchase and credit cards. One of
the big driving factors in this pattern is the agriculture,
hunting, forestry and fishing sector which is
understandably more prevalent in rural than urban
settings and has patterns of finance usage that differ
from other businessess.
Despite higher external finance use, 2020 also saw a
greater share of rural business owners injecting personal
funds than their urban counterparts. The Bank’s
Business Finance Survey found that 37% of rural-based
business owners had injected personal funds into their
business in the last 12 months compared to 32% of their
urban counterparts. The majority in both groups stated
that this was something they felt they had no choice
about and had to do, but again this proportion was
higher among rural business owners.
The fact that 2020 saw rural businesses using external
finance and injecting their own personal funds in greater
proportions than urban firms highlights just how difficult
the year was for them. Now that the UK’s successful
vaccine rollout has led to the removal of most restrictions
on economic activity, the period ahead should allow
many more rural and urban businesses to progress
towards their ambitions, something the Bank hopes to
contribute to.
Further understanding and addressing
imbalances in access to finance remains a
core part of the Bank’s mission
With more and more businesses moving from survival
mode into recovery and expansion, the Bank’s mission to
drive sustainable growth and prosperity across the UK
and enable the transition to a net zero economy by
improving access to finance for smaller businesses will
come to the fore. In order to deliver against this mission
we are committed to both performing further analysis
to build our understanding of the drivers behind the
geographic imbalances in UK business finance use and
ensuring our programmes play a continued role in
alleviating these imbalances.
Executive Summary
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Introduction
This is the Bank’s first annual Regions and
Nations Tracker, designed to complement our
flagship Small Business Finance Markets report
with analysis that illuminates the geographic
patterns seen in UK small business finance.
Our understanding of small business
finance markets across the UK draws on
both the latest available data and the
intelligence we obtain through our UK
Network and as an active participant in
finance markets. This knowledge base is
central to delivering on our objective to
be the centre of expertise on smaller
business finance markets for government.
It is also used to shape our business plan
and in the design of our programmes and
products, particularly those that aim to
reduce imbalances in access to finance
for smaller businesses across the UK.
Structure of the report
The report is divided into two sections. Part A begins
with an overview of finance markets in the regions and
nations of the UK that sets the scene for the remainder
of the report. The overview explains which forms of
finance are most commonly used across the UK and
delves into some of the geographic imbalances in usage
we see.
The next two components of part A provide in-depth
analysis on topics we will change each year. In this year’s
edition we have undertaken detailed analysis of equity
investor networks that sheds light on the importance of
distance between investors and investee companies.
We have also, for our second piece of thematic analysis,
investigated finance use in rural firms and how this
differs to usage among firms in urban locations.
The final element of part A explains how the Bank’s
programmes support businesses across the UK.
This short section places particular focus on the
Bank’s regionally-targeted programmes: the Regional
Funds and the Regional Angels Programme.
Part B of the report sets out for each region and nation
in the UK the datapoints needed to understand finance
markets in that location. Alongside data covering flows
of finance, attitudes to finance and finance ecosystems,
readers will find a selection of short case studies that
should help show just how important external finance can
be for businesses of all characteristics in all locations.
Introduction
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Regions and nations
market overview
Part A - 1.1
– More than four in 10 SMEs were using external
finance in early 2021
– Core debt products are the most used form of
external finance in all regions and nations of the UK
– Equity finance is rarer but is particularly suited to
businesses with the potential for rapid growth
– There are regional and sub-regional variations in
finance availability which are most pronounced for
specialist debt products and equity
– The British Business Bank has a mission to improve
access to finance for businesses across the UK
External finance can be an important
tool for businesses at all stages of
development. Whether borrowing funds
to start up, securing investment to expand
or establishing working capital facilities
to manage the uncertainties of trading,
external finance can give entrepreneurs
and businesses options they wouldn’t
otherwise have.
More than four in 10 SMEs were using external
finance in early 2021
At the end of quarter two this year, 45% of SMEs were
using some form of external finance according to the
SME Finance Monitor. That level of usage is 13
percentage points up on the first quarter of 2020 and is
among the highest rates of usage seen across the last
10 years (figure 1.1). Usage would likely have been even
higher over this period were it not for the availability of
other forms of support not classed as external finance
such as the Coronavirus Job Retention Scheme.
Fig 1.1
Proportion of SMEs currently using external finance
Source: BVA BDRC SME Finance Monitor
1.1 Regions and nations market overview
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The sharp increase in finance usage in the second half
of 2020 and beyond was driven by the impacts of
the pandemic with cash flow-related motivations rising
to become the dominant driver of funding needs.
Data from the SME Finance Monitor suggested that
more than eight in 10 funding requirements in 2020
were at least partly related to cash flow, up from
around five in 10 in 2019.
Unsurprisingly, business development activities such as
funding expansion plans or investing in new equipment
became much less common as a driver for funding
needs, falling from being mentioned for 58% of funding
needs to just 24% over the same period.
The intense working capital pressures businesses faced
in the wake of the pandemic led to the creation of the
Bank’s Coronavirus Business Interruption Loan Schemes;
the Bounce Back Loan Scheme (BBLS), the Coronavirus
Business Interruption Loan Scheme (CBILS) and the
Coronavirus Large Business Interruption Loan Scheme
(CLBILS). These schemes were used in great number by
the business population contributing to a record 16% of
businesses reporting that they were using bank loans at
the end of 2020, higher than the proportions utilising
credit cards or overdrafts1.
Fig 1.2
Use of external finance by type
Source: BVA BDRC SME Finance Monitor, Q3 2018 - Q4 2020
Core debt products are the most used
form of external finance in all regions and
nations of the UK
Looking over a slightly longer period covering the 10
quarters running to the end of 2020, debt products
remain the most widely used although overdrafts and
credit cards have typically been more popular than
bank loans (figure 1.2)2.
This pattern of core debt as the most commonly used
finance category holds for all parts of the UK though
there is some variation in rates of usage for some
specific product types. Northern Ireland is at the top of
the range for all four of the most common finance types
with the East of England (overdrafts, credit cards and
bank loans) and South East (leasing) sitting at the bottom
during the period covered.
1.1 Regions and nations market overview
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Equity finance is rarer but is particularly
suited to businesses with the potential for
rapid growth
As shown in figure 1.2, equity finance from third parties
such as business angels, venture capital funds and
equity crowdfunding platforms is considerably rarer
than core debt products. Despite its relative rarity,
equity finance makes an outsized contribution to the
economy through supporting companies with the
potential for rapid growth.
Companies looking to expand into, or even to create,
new markets as well as those looking to fuel rapid growth
may be unable to secure debt finance due to their risk
profile, lack of collateral or variable cash flows. For these
companies, equity investments that do not come with
the need for regular repayments can create a runway to
deliver on growth plans.
In 2020, there were a record 2,044 publicly announced
equity investments3 for UK SMEs amounting to £8.8bn
of investment.4 The strength of activity in part reflects
the Bank’s Future Fund scheme which was designed to
support equity-backed companies through the
pandemic, but also reflects the growing maturity of the
UK’s funding landscape.
Another important component of this landscape comes
from private debt providers. Private debt providers
specialise in providing flexible and bespoke funding
structures for borrowers whose needs may not be met
by standardised bank lending products. Private debt
deals can incorporate features such as rolled-up interest
or bullet repayment and can therefore be well suited to
companies looking to implement step-change growth
plans without selling equity.
Historically there has been little data on private debt
activity at the lower end of the company-size spectrum
but with the support of 37 fund managers, the Bank was
able to compile data on market activity in 2018 and
20195. The participating fund managers were responsible
for £9.0bn worth of funding in 2018 and £9.4bn in 2019.
Around half of this is estimated to have gone to SMEs
demonstrating that private debt is of comparable scale
to SME equity investment.
There are regional and sub-regional variations
in finance availability which are most
pronounced for specialist debt products
and equity
Although core debt products are comfortably the most
widely used, the scope for companies backed by
equity and specialist debt products to make outsized
economic contributions means that geographic
variations in all finance forms matter. The benefits from
diverse finance markets, which can include widening
access and improving the matching of finance forms to
business needs6, add to the imperative to understand
the geographic spread of all finance forms, whether
mass market or highly specialised.
1.1 Regions and nations market overview
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A simple measure that adds up the shares of the four
largest units, in this case regions and nations, is a useful
tool for analysing concentration. As we might expect,
bank lending is relatively evenly spread across the UK
as its concentration level, measured by the CR4 ratio
described above, fairly closely mirrors that of the
underling business population (figure 1.3). This was true
prior to the pandemic and data on the Bank’s BBLS,
CBILS and CLBILS schemes showed that this pattern
continued in 20207.
Although bank lending has a similar degree of
concentration to the business population, this does not
mean that there is a perfectly even spread. For example,
the East, East Midlands, South East, West Midlands and
Yorkshire and the Humber all had shares of business
term lending at least one percentage point below their
shares of the business population in 2018 to 2019. These
deviations are meaningful given the status of bank loans
as one of the most widely relevant finance products.
Fig 1.3
Concentration ratios by finance forms
Source: Beauhurst, ONS data, UK Finance and British Business
Bank UK Private Debt Research Project
The deviations seen in the distribution of private debt
and equity finance are, however, much wider (figure 1.3).
Between 2018 and 2019, 69% of the value of private
debt facilities and 86% of the value of equity investment
was concentrated in the four regions with the largest
shares: London, the South East, the East of England and
the North West. Both these concentration levels are
notably greater than the concentration level of the SME
population in the UK.
For private debt, only London and the South East had a
greater share of activity than their share of SMEs while
for equity only London meets this threshold. This
concentration can leave other regions looking severely
underweight. For example, Yorkshire and the Humber
accounted for just 4.9% of private debt activity and 1.5%
of equity activity in the period covered despite hosting
7.2% of the SME population.
1.1 Regions and nations market overview
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Regional imbalances are not the end of the story,
however, as there are also wide imbalances at lower
geographies too. Using more granular data at the local
authority level we can see a striking degree of
concentration in equity activity. Westminster, the top
local authority in the distribution, has had more than
1,000 SME equity deals since 2011 while 50% of local
authorities have had fewer than 10 during this period
and 70% fewer than 20 (figure 1.4).
Westminster is not the only star location, there are
six other local authorities that have had more than
500 deals since the Beauhurst dataset began in 2011:
the City of London, Islington, Hackney, Camden,
the City of Edinburgh and Southwark. Taken together,
the top 20 local authorities, which also include a
number of non-London hotspots such as Manchester,
South Cambridgeshire, Glasgow City, Cambridge,
Bristol, Cardiff, Oxford, Newcastle upon Tyne,
Leeds and Birmingham, account for 58% of all deals
since 2011.
Fig 1.4
Equity activity distribution at local authority level
Source: Beauhurst
Our private debt dataset covers a much shorter period
but shows a similar pattern of sub-regional variation.
More than half of the local authority districts in the UK
have no deals in the dataset while Westminster, again
the top location, accounts for 5% of those recorded.
The fact that Westminster and some of the other top
local authorities are popular locations for business
headquarters may play a role in the patterns we see.
If finance use is recorded against headquarters where
little economic activity takes place this could exaggerate
observed regional imbalances. We believe this so-called
headquarter effect has some relevance but given 98%
of registered businesses operate from only one site8
the stark concentration in finance use described above
should not be ignored.
This is particularly the case because the concentration
of equity and private debt that we see at both regional
and sub-regional level does not reflect a dearth of
high-quality companies in areas with lower finance flows.
The latest ONS data on high growth businesses records
that 45% are based outside London, the South East,
the East of England and the North West, a share exactly
matching the business population split (figure 1.3).
1.1 Regions and nations market overview
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Instead, the lower flows of finance in certain regions and
sub-regions reflect a population of entrepreneurs and
businesses operating with fewer choices. Over time, the
compromises entailed by a lower choice environment
have undoubtedly held back large numbers of
businesses, but this is something the Bank remains
committed to changing.
The British Business Bank has a mission to
improve access to finance for businesses
across the UK
Since our formation in 2014, improving opportunities for
UK entrepreneurs and businesses has been at the heart
of our mission. This has led us to develop products
with a specific aim of improving financial imbalances,
in addition to the efforts we make to achieve regional
impact from our national products.
Our three Regional Funds, the Northern Powerhouse
Investment Fund, the Midlands Engine Investment Fund
and the Cornwall and Isles of Scilly Investment Fund,
have already made demonstrable impacts on business
outcomes like employment and turnover for a
generation of businesses in previously under-served
areas. Our Regional Angel Programme is much newer
but is helping do the same through sizeable
commitments to eight delivery partners who in turn
have already made more than 250 investments.
Alongside our efforts as a market participant, we are
keen to use our position as a centre of expertise for
UK business finance markets to expand and share the
evidence base on geographic dimensions to finance.
This new publication series will give us a further outlet to
engage with others who share our commitment to making
every part of the UK a great place to do business.
1.1 Regions and nations market overview
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Investor networks
– For lots of equity investments, the relationship
formed is as important as the capital provided
– More than eight in 10 equity investment
relationships meet the two-hour travel time rule
– Despite the dominance of relatively short distance
deals, there are strong investment links between
different parts of the UK
– The massive increase in home working prompted by
the pandemic does not yet appear to have shifted
distance patterns in equity investment
– Investors with a local presence are critical to the
success of UK equity ecosystems
Part A - 1.2
Since 2011 there have been almost
15,000 publicly announced private
external equity deals for small and medium
sized businesses in the UK. These deals
bring together entrepreneurial and
investing talent with the aim of unlocking
rapid company growth.
For lots of equity investments, the relationship
formed is as important as the capital provided
Equity investors don’t just select companies, the
matching is two-sided and the entrepreneurs must also
be happy to work with the investors9. This mutual
agreement to form a relationship happens over time,
driven by face-to-face meetings to support funding
decisions and pre-investment diligence that often
involves on-site visits.
The relationship doesn’t end at the point of investment.
Post-investment there are ongoing flows of information
and advice as well as formal monitoring processes, often
involving the investor sitting on the company board. This
need to build a trusting relationship, coupled with other
features of investing in private companies such as a lack
of regulatory requirements to disclose detailed financials
and the reliance on personal networks to source deals,
can create strong incentives for investors to make equity
investments in businesses within close proximity.
Investors and entrepreneurs may also find that being
within close proximity means they have familiar codes of
practice and behaviours. This can have a psychological
effect and draw upon our preferences to invest in the
familiar, a phenomenon seen in public markets too10,11.
In equity investment, these forces have resulted in the
so-called ‘one-hour’ or ‘two-hour’ rules, which suggest
investors are unlikely to invest further than a one- or
two-hour drive from their location.12 Previous research
undertaken by BEIS found evidence supporting the
spatial proximity hypothesis in UK private external equity
markets, whereby the number of equity investments
undertaken decreases with the distance from the head
or branch office of the investor.13 This chapter aims to
take this one step further, and explicitly test the travel
time hypotheses mentioned above.
Our methodology utilises data from Beauhurst and the
Google Directions API to test the one and two-hour
hypotheses for the UK. Beauhurst record equity deals
made by the full range of investors, from large multi-
million growth deals in established businesses by private
equity funds to smaller deals in early stage companies
by angel investors and equity crowdfunding platforms.
1.2 Investor networks
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Between 2011 and 2020 Beauhurst captured 14,574
announced SME equity deals involving 3,912 unique
investors. Fundraisings can involve multiple investors and
where this is the case such fundraisings result in multiple
pairings in our dataset. For example, a deal with three
investors will result in three pairings: recipient to investor
A, recipient to investor B and recipient to investor C.
Deals with multiple investors are common so our 14,574
deals yield 21,579 investor-investee relationships. These
‘pairings’ are the focus of this chapter and cannot be
viewed as ‘deals’ given, as explained above, a single deal
may have multiple pairings.
Only pairings involving UK-based investors were within
scope, meaning 16,778 of the 21,579 overall pairings
made it into the final sample. Many investors have
multiple offices, so the analysis uses the postcode for
the closest investor office to each recipient company in
all cases to calculate the fastest travel time between the
pair. Both car and public transport times are calculated
with the faster option used.
Fig 2.1
Proportion of investor-investee pairings involving an
investor with an office within one or two hours of the
recipient business, by recipient location
Source: Beauhurst, 2011 - 2020
More than eight in ten equity investment
relationships meet the two-hour travel time rule
The ‘one-hour’ or ‘two-hour’ rules in VC are supported
by evidence from the UK, especially the ‘two-hour’ rule.
Figure 2.1 shows that for 61% of investor-investee pairings
in UK private external equity investments undertaken
between 2011 and 2020 the investor had an office within
an hour of the recipient company's headquarters, and
82% within two hours.
It’s a slightly more complex picture when you consider
that a key driver of this trend is investment in London-
based businesses, which represent 42% of pairings in
the sample. For investments in London-based
businesses, 90% of pairings were located within an hour,
and 96% within two hours. The two rules of thumb,
especially the ‘one-hour’ rule, are not reflected quite as
strongly in the non-London data, with only 46% of
investor-investee pairings having an office within an hour.
However, the proportion of pairings within two hours
remains high for recipients outside of London at 72%.
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Although for these high-level geographic groups the
hypotheses around travel time seem to hold, the
picture is more nuanced once this is broken down into
specific regions and nations. As outlined in figure 2.2,
the proportion of pairings within a two-hour travel
time ranges from 96% in London to just 37% in the
South West.
Despite the dominance of relatively short
distance deals, there are strong investment
links between different parts of the UK
The key driver of the trend in travel times between
investors and recipients in a region or nation is the
extent to which the geography has an active local equity
investor base. As may be expected, London-based
investors are the dominant source of external capital
across the UK, hence proximity to London for regions
without strong local investor bases drives travel
time trends.
Fig 2.2
Proportion of investor-investee pairings involving an investor with an office within one or two hours of the
recipient business, by recipient UK region or nation
Source: Beauhurst, 2011 - 2020
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The level of reliance of individual regions and nations on
London-based investors varies widely across the UK,
as outlined in figure 2.3, and each region and nation can
be categorised into three broad groups:
1. Self-contained: For at least two thirds of pairings in a
region or nation the closest office of the investor was
in the same region or nation
2. Mixed geographies: Pairings in which the closest
office of the investor was in the same region or nation
as the recipient were the most common result,
however the closest investor was external for at least
40% of pairings
3. London-reliant: For the majority of pairings involving a
company within these regions or nations the closest
office of the investor is in London.
Fig 2.3
Comparison of geographic location of investor-investee pairings, by UK region or nation
Source: Beauhurst, 2011 - 2020
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Fig 2.4
Split of overall pairing population by recipient business
geography classification
Source: Beauhurst, 2011-2020
The majority of equity activity takes place in
the self-contained regions and nations
As shown in figure 2.4, almost six in 10 of the 16,778
pairings in the analysis fall into the ‘self-contained’
regions and nations, which is unsurprising given London
falls into this category. The second most populous
category is the ‘London-reliant’ regions at 25%, followed
by ‘mixed’ regions and nations with 18% of pairings.
Self-contained geographies
Three regions and nations fall into this bracket, London,
Scotland and the North East. As outlined in figure 2.5,
87% of pairings involving companies in these geographies
are with an investor in the same region or nation. London
has the highest share on this metric, with 90% of pairings
within-region, followed by Scotland at 81% and the
North East with 66%.
Due to the strong contribution of within-region investors
to deal volumes, 90% of pairings within the self-contained
geographies meet the two-hour rule as outlined in
figure 2.6. The strength of both Scotland and the North
East on this metric is testament to their local investor
bases, given all transactions involving London investors
fall outside of the two-hour rule for both geographies.
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Fig 2.5
Comparison of geographic location of investor-investee pairings by region or
nation of recipient- Self-contained geographies
Source: Beauhurst, 2011 - 2020
Fig 2.6
Proportion of investor-investee pairings in which the investor had an office within
two hours of the recipient, by region or nation of recipient- Self-contained geographies
Source: Beauhurst, 2011 - 2020
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The distribution of pairing travel times within the
‘self-contained’ geographies resembles a power-law
distribution as across most of the range, doubling
the travel time roughly halves the share of pairings.
For example, in 51% of pairings the investor had an
office within 20 minutes of the recipient business with
23% in the 20-40 minute bracket. The investment
ecosystems in these ‘self-contained’ geographies are
therefore extremely localised, supporting the
hypothesis that investors have a local bias when
making investment decisions where there is a strong
local investment ecosystem.
Fig 2.7
Distribution of travel time between company and investor, investor-investee pairings in ‘self-contained’ geographies 
Source: Beauhurst, 2011 – 2020
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Spotlight on… The North East
Figure 2.8 shows the distribution of travel
times for pairings involving businesses in the
North East, one of the areas in the self-
contained category. For 73% of pairings, the
investor had an office within two hours of the
businesses’ headquarters, slightly lower than
the national average but higher than many
surrounding regions. The distribution in the
North East is much closer to the overall UK
distribution than other regions in the North
and Midlands, and the North East also has
the third highest proportion of within-region
investment of all UK regions and nations, at
66% of pairings, behind only Scotland and
London. This strong local investor base is
reflected in travel time patterns as 64% of
pairings are within 60 minutes, the second
highest of any UK region or nation.
Fig 2.8
Distribution of travel time between company and investor, investor-investee pairings in the North East 
Source: Beauhurst, 2011 – 2020
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As mentioned above, the North East has a relatively
strong local investor ecosystem centred around
Newcastle and driven by the European Regional
Development Fund and European Investment Bank-
backed North East Fund’s investment programme.
As a result, 42% of pairings involving North East
companies include investors with an office in the
Newcastle upon Tyne Local Authority District (LAD),
one of the highest concentrations of investors in
a single LAD in any UK region or nation.
Investors with an office in Leeds also had a reasonable
presence within the North East. As may be expected
the largest proportion of pairings in the North East
were in Newcastle-based companies, at 31%. This
means recipients are slightly less concentrated than
investors within the region. The surrounding areas
represent strong clusters of activity, with 20% of
pairings in the County Durham LAD, 9% in Sunderland
and 8% in Gateshead. Overall, equity pairings are
relatively well distributed throughout the region.
Fig 2.9
Distribution of investors involved in North East
investor-investee pairings, by NUTS 2 
Source: Beauhurst, 2011 – 2020
Fig 2.10
Top five Local Authority Districts in the North East by
proportion of North East investor-investee pairings 
Source: Beauhurst, 2011 – 2020
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Case study
Nova Pangaea
Technologies
Programme: Northern Powerhouse
Investment Fund, Future Fund
Nova Pangaea, a Teesside-based clean tech
company, has experienced rapid growth with
the help of three funding rounds with the
Northern Powerhouse Investment Fund
(NPIF), including an increase of over 45% in
staff numbers since January 2020.
The company, which has developed a new
way to generate fuel and chemicals from
waste biomass, has invested in a number of
senior recruits since this investment, taking
its total full-time members of staff to 17.
It has also secured a string of plant trials
with large forestry, agriculture and oil and
gas multinationals.
Established in 2009, Nova Pangaea received
an initial investment of £2.3 million in 2019 as
part of a funding round led by NPIF – Mercia
Equity finance, which is managed by Mercia
and is part of the Northern Powerhouse
Investment Fund. This was in addition to
funding from existing investors, including UK-
based Cambridge Angels and Par Equity,
located in Edinburgh. This injection was used
to develop Nova Pangaea’s first-of-its-kind
technology process.
In 2021, the clean tech firm received a
further £1.1m investment from NPIF – Mercia
Equity Finance, the UK Government’s Future
Fund and existing shareholders. The funding
was used to scale the business significantly,
which has since led to the business raising a
further £2.4 million in a Series A funding
round led by Par Equity alongside NPIF and
Cambridge Angels, as well as several existing
private investors.
The Northern Powerhouse Investment Fund
project is supported financially by the
European Union using funding from the
European Regional Development Fund (ERDF)
as part of the European Structural and
Investment Funds Growth Programme 2014-
2020 and the European Investment Bank.
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Local investors are important but not dominant
in the Mixed geographies
Five regions and nations fall into this bracket, Northern
Ireland, Wales, the North West, Yorkshire and the
Humber and the West Midlands. As outlined in figure
2.11, when pooled together, 50% of pairings involving
companies within these geographies, also involve an
investor in the same region or nation.
The regions and nations in this category do, however,
vary in terms of the prevalence of local investors. At the
upper end of this category is Northern Ireland where
59% of pairings are within region and at the lower end is
the West Midlands where the share is 40%. Despite this
variation, within-region investors are the largest group of
investors in all regions in this category. Non-London
external investors account for around 20% of pairings
across the category meaning the London share of
pairings is higher for regions with a less developed and
active local investor base.
Fig 2.11
Comparison of geographic location of investor-investee pairings by region or nation of recipient -
‘Mixed’ geographies 
Source: Beauhurst, 2011 – 2020
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Despite the balance between local and London-based
investors varying somewhat between geographies in
this category, the proportion of pairings in each region
or nation for which the ‘two-hour’ rule holds is relatively
consistent at around 60%. This reflects that, whilst
regions such as the West Midlands are substantially
more London-reliant than somewhere like Northern
Ireland, much closer proximity to London and
established transport links mean that London-based
investors can get to many areas in the West Midlands
within two hours. The West Midlands therefore has the
highest proportion of pairings involving an investor
within two hours of the recipient of any geography in
this category.
Fig 2.12
Proportion of investor-investee pairings in which the investor had an office within one or two hours of the recipient,
by region or nation of recipient - ‘Mixed’ geographies
Source: Beauhurst, 2011 – 2020
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The distribution of travel times for pairings involving
recipients located within the ‘mixed’ geographies differs
somewhat to that of the overall UK distribution and to
the ‘self-contained’ geographies. Although the most
common travel time remains at 0-20 minutes, the
distribution does not follow a power law with a second
peak at 160-180 minutes. The position of this second
peak is driven by travel times between the mixed
geographies and London which tend to be more than
two hours, with the exception of certain parts of the
West Midlands as noted above.
Fig 2.13
Distribution of travel time between company and investor, investor-investee pairings in ‘mixed’ geographies 
Source: Beauhurst, 2011 – 2020
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Spotlight on… Wales
As shown by figure 2.14 the distribution of
travel times between businesses in Wales
receiving private external equity investment
and the office of the closest investor is
somewhat similar to that of the overall
‘mixed geographies’ sample. There is an
initial peak at the 0-20 and 20-40-minute
categories driven by local investment,
followed by a second peak further along.
However, a key distinction, and a feature
fairly unique to Wales, is that this second
peak is primarily driven by the activity of
local rather than London-based investors.
The distance between key clusters of
investors in North Wales and recipients
in the South of Wales is the driver of this
trend and explored further below.
Fig 2.14
Distribution of travel time between company and investor, investor-investee pairings in Wales 
Source: Beauhurst, 2011 – 2020
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The majority of equity deals in Wales were in businesses
located in the South of the country. As you can see from
the table several clusters exist here, with Cardiff as the
focal point. Recipients in Cardiff, Swansea, Newport and
Bridgend represent 37%, 10%, 7% and 5% of pairings
respectively. Investors are similarly clustered in Cardiff,
with Cardiff-based investors representing 33% of
pairings involving Welsh businesses. However, the
second largest is Wrexham with 15% of investors despite
businesses in the area only featuring in 2% of pairings.
This is driven by the location of the Development Bank
of Wales, and heavily influences the distribution chart
above due to Wrexham’s distant location relative to the
equity clusters in the South of Wales.
Fig 2.15
Distribution of investors involved in Wales
investor-investee pairings, by NUTS 2 
Source: Beauhurst, 2011 – 2020
Fig 2.16
Top five Local Authority Districts in Wales by
proportion of Wales investor-investee pairings 
Source: Beauhurst, 2011 – 2020
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The East of England, South East, East Midlands
and South West are strongly reliant on London
Four regions fall into the London-reliant bracket, the East
of England, the South East, the East Midlands and the
South West. These regions have been grouped together
as London-based investors are involved in the majority
of pairings for companies in these regions. The level of
London reliance is similar within each region, at roughly
60% of pairings, however the regions in this category
differ in their balance between local and external
investors. For instance, the East Midlands was the region
with the lowest level of London reliance in this category,
at 50% of pairings, however, it also has the lowest
proportion of pairings involving within-region investors of
any UK region or nation. External non-London investors
therefore play a vital role in the East Midlands equity
ecosystem, explored in more detail in the spotlight
section further into this report.
Fig 2.17
Comparison of geographic location of investor-investee pairings by region or nation of recipient -
‘London-reliant’ geographies 
Source: Beauhurst, 2011 – 2020
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Fig 2.18
Proportion of investor-investee pairings in which the investor had an office within one or two hours of the recipient,
by region or nation of recipient - ‘London-reliant’ geographies
Source: Beauhurst, 2011 – 2020
There are two key groups in this category, both with
widely different proportions of deals for which the
‘two-hour’ rule holds true. Firstly, there are the East of
England and South East which, because they heavily
rely on London-based investors, have the second and
third highest proportion of investor-investee pairings
with a travel time under two hours, at 91% and 90%
respectively.
This differs from the other two regions in this category,
the East Midlands and the South West which, despite
having similar levels of reliance on external investors, are
two of the bottom three regions for the proportion of
pairings meeting the two-hour rule. This discrepancy is
almost solely down to the relative proximity of the South
East and East of England to London compared to the
East Midlands and South West.
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The distribution of travel times for pairings involving
recipients located within the ‘London-reliant’
geographies differs widely to that of the overall sample.
Unlike both the ‘self-contained’ and ‘mixed’ geographies,
the most common travel time bracket for the ‘London-
reliant’ geographies is not 0-20 minutes, but rather
80-100 minutes. Pairings are heavily clustered in the
40–160-minute travel time range, driven, as flagged
above, by the prevalence of London-based investors
in these regions.
Fig 2.19
Distribution of travel time between company and investor, investor-investee pairings in ‘London-reliant’ geographies 
Source: Beauhurst, 2011 – 2020
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Spotlight on… The East Midlands
Figure 2.20 shows the distribution of travel
times for pairings involving East Midlands
businesses. The distribution is somewhat
similar to that of the ‘London-reliant’
geographies as a whole, however with some
differences. There is a pronounced initial
peak at the 40-60 and 60-80-minute travel
time categories primarily driven by investors
based outside of both the East Midlands and
London. This nuance is explored in more
detail below.
Fig 2.20
Distribution of travel time between company and investor, East Midlands investor-investee pairings 
Source: Beauhurst, 2011 – 2020
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As you can see in figure 2.21, the trend outlined above
is driven by a strong cluster of investments coming
from the West Midlands, specifically Birmingham.
Investors with an office in Birmingham were involved
in 17% of all pairings with East Midlands businesses.
This highlights a key intra-Midlands ecosystem, where
the East Midlands is relatively unique in terms of the
proportion of investments coming from investors
based outside of the region and outside of London.
In terms of the location of recipient businesses in
the East Midlands, companies in Nottingham were
involved in the most pairings with 20% within the
Nottingham Local Authority District. There are a few
other deal clusters centred around Northampton
and Leicester, however both are substantially smaller
than the Nottingham cluster.
Fig 2.21
Distribution of investors involved in East Midlands
investor-investee pairings, by NUTS 2 
Source: Beauhurst, 2011 – 2020
Fig 2.22
Top five Local Authority Districts in the East Midlands by
proportion of East Midlands investor-investee pairings 
Source: Beauhurst, 2011 – 2020
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Case study
4D Biomaterials
Programme: Midlands Engine
Investment Fund
4D Biomaterials is a Nottingham-based
company which has developed a new
biomaterial used for 3D printing medical
implants. It completed a £1.6m funding
round in 2021.
The investment into 4D Biomaterials was led
by DSW Ventures and backed by the MEIF
Proof of Concept & Early Stage Fund, which
is managed by Mercia and part of the
Midlands Engine Investment Fund, Mercia’s
own funds, and existing investor SFC Capital.
The funding will be used to develop a range
of products through partnerships with
medical device companies and expand its
team with the creation of five new jobs at its
premises in MediCity.
4D Biomaterials’ product 4Degra can be
printed to the exact shape required in the
form of an open cell honeycomb structure
and used to improve patient outcomes in a
range of applications including tumour
removal in breast cancer patients. As natural
tissue grows back through the voids, the
structure gradually erodes and is expelled
harmlessly by the body. 4Degra could also
help patients recovering from other types of
surgery and trauma, such as that caused by
road traffic accidents.
4Degra – which is the only 3D printed material
of its type that is also biodegradable - was
developed for over 15 years in Professor
Andrew Dove’s research group at the
University of Warwick and University of
Birmingham. Having spun out of the
universities last year, the company appointed
Phil Smith - an entrepreneur with a track
record in biotech spin-outs – as its CEO.
The Midlands Engine Investment Fund project
is supported financially by the European
Union using funding from the European
Regional Development Fund (ERDF) as part of
the European Structural and Investment
Funds Growth Programme 2014-2020 and
the European Investment Bank.
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Smaller investors and crowd funders appear
slightly less bound by the two-hour rule
Previous research on this topic has considered whether
investor characteristics affect an investor's level of local
bias. For instance, a 2013 study14 considers whether the
reputation and experience of a Venture Capital (VC)
investor makes them more or less likely to exhibit local
bias in their investment decisions. The researchers
hypothesise that more reputable and experienced VCs
are more likely to overcome informational asymmetries,
and therefore distance will be less of a barrier in their
investment decisions. The evidence appears to support
this hypothesis based on the researchers' sample drawn
from US VC deals between 1990 and 2009.
Our dataset lacks many of the standard proxies for
investor reputation, such as historic returns, total
amount of private sector capital raised, and success in
taking companies public. Therefore, an alternative proxy
for investor experience has been used. Beauhurst has
data on the total amount invested by each investor in its
dataset. This is relatively closely related to the amount of
capital raised so should be a suitable, albeit less
commonly used, proxy for experience and reputation.
Figure 2.23 splits the overall sample of investor-investee
pairings into four buckets using this data. The top quartile
bucket has all pairings involving the 25% of investors that
have invested the most capital. The next three buckets
step down to plot pairings involving three more quartiles
of the investor sample with the bottom quartile bucket
plotting data for the 25% that have invested the least.
We find that based on this measure of investor
experience, less experienced investors actually display
less local bias, contrary to expectations and the US
evidence cited above. In 84% of the pairings involving
investors in the upper quartile of experience by this
metric, the investor’s closest office was within two
hours of the recipient business. This compares to
72% for investors in the lower quartile of experience
by this metric.
Fig 2.23
Proportion of investor-investee pairings in which
the investor had an office within one or two hours of
the recipient, by quartile of investor in terms of
total invested
Source: Beauhurst, 2011-2020 
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A recent development in smaller business equity markets
has been the rise of crowdfunding platforms, which have
been one of the fastest growing investor types over
recent years. Crowdfunding platforms are particularly
interesting in the context of local bias in equity
investment, since in theory networks become superfluous
with investor and investee being brought together via
third-party internet platforms.15
Crowdfunding has been described by some as
‘disintermediation of the finance market’16, with some
studies highlighting the large distances between
crowdfunded ventures and those who fund them.17
It should be noted that we only have data relating to the
location of the crowdfunding platform’s offices, and
therefore figure 2.24 relates to the travel time between
recipient business and the location of the crowdfunding
platform’s closest office, as opposed the location of
individuals investing through the platform.
Figure 2.24 plots the distance distribution of pairings
involving crowdfunders with that of other investor types.
As may be expected, a greater proportion of
crowdfunded pairings exceed the two-hour rule than
for other investor types. Travel times were greater than
two hours for 24% of pairings involving crowdfunding
compared to just 17% for the overall sample. This
supports the hypothesis that crowdfunding overcomes
some of the key drivers of local investment bias.
Conversely, and as may be expected, university
investors are much more localised in their investment
activity and have only 11% of their pairings with
companies further than two hours away.
Fig 2.24
Proportion of investor-investee pairings in which
the investor had an office within one or two hours of
the recipient, by investor type
Source: Beauhurst, 2011-2020 
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The massive increase in home working prompted
by the pandemic does not yet appear to have
shifted distance patterns in equity investment
Over recent years, and especially in 2020 with the onset
of the Covid-19 pandemic and accompanying restrictions
limiting the amount of face-to-face contact allowed,
an increasing amount of communication takes place online
rather than in person. With the proliferation of Microsoft
Teams and Zoom-based meetings, it could be expected
that some of the factors that drive investors’ local bias
could begin to become less important. For instance,
if board and due diligence meetings that previously took
place in person have moved online, investing further
afield could be more attractive.
Figure 2.25 therefore looks at the mean and median
distances between investor and recipient for pairings
occurring in each year. Contrary to what may be
expected, between 2011 and 2016 the average time
between investor and investee actually trended
downwards, suggesting a further shift towards short-
distance deals. However, it is likely that this is a result
of the strong development of the London equity
ecosystem during this time. Since 2016, median travel
times have stayed relatively flat whilst the mean has
trended upwards slightly. Again, this may partly reflect
wider geographic trends in terms of the proportion of
overall UK SME equity flows going to London-based firms.
There is a slight uptick in on both the mean and median
in 2020, however it is not statistically significant when
controlling for other characteristics. It is perhaps
unsurprising, and any effect may take some time to
become evident in the data.
It is also true that 2020 was an atypical year. Due to the
uncertainty created by the Covid-19 pandemic and the
disruption caused by associated public health measures,
many investors were focussed on supporting their
existing portfolios in 2020. This came at the cost of
sourcing new investment opportunities, due to high
levels of uncertainty. Any attitudinal changes to
geographic bias in investment decision-making may
therefore have been masked by these cyclical forces.
Fig 2.25
Mean and Median travel time between investor and
investee, by year
Source: Beauhurst, 2011-2020 
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Investors with a local presence are critical to
the success of UK equity ecosystems
This research has demonstrated that equity investors
in the UK display a clear local bias when making
investment decisions, in part driven by structural market
failures related to asymmetric information. In addition,
place-based interactions with market failures and
agglomeration forces contribute to equity investors and
other ecosystem participants clustering in established
ecosystems. Consequently, many areas of the UK lack
a strong local equity investor base, meaning businesses
in these areas are reliant on investors from other
UK geographies.
Figure 2.26 compares the strength of the SME equity
ecosystem within each UK region and nation. The chart
plots the average annual number of external equity deals
per high-growth business between 2018 and 2020, with
the proportion of equity pairings involving an investor
with an office within an hour of the company location.
There is a clear positive correlation between equity deals
per high-growth business, and the strength of the local
investor base. This highlights the importance of the
Bank’s regional funds in driving investors to locate and
invest in underfunded equity ecosystems.
Fig 2.26
Comparison of equity deals per High Growth Business (HGB) in each UK region and nation with the proportion
of equity pairings involving an investor with an office within an hour
Source: Beauhurst, 2011-2020 
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Finance for rural
businesses
– Rural businesses make up a sizeable proportion of
the business stock in each of the UK nations
– Attitudes to finance are similar among rural and
urban firms but urban firms are more likely to have
a trained financial decision-maker
– A greater share of rural businesses used external
finance in 2020 than urban businesses
– Despite higher external finance use, 2020 also saw
a greater share of rural business owners injecting
personal funds than their urban counterparts
– The British Business Bank's programmes already
support large numbers of rural businesses and will
continue to do so as the UK economy recovers
Part A - 1.3
As section 1.1 has outlined, flows of finance
vary both between the constituent parts
of the UK and within them. Understanding
how attitudes to, and use of, finance may
vary by geography can help us better
understand some of the within-region
variation we see. Whether a business
operates in a dense conurbation or a
sparse rural location, external finance can
be a useful option for them. This section
aims to shed light on patterns of finance
use for businesses at different ends of
that spectrum.
Rural businesses make up a sizeable proportion
of the business stock in each of the UK nations
Precise definitions of rurality vary between the different
nations of the UK but in each nation, rural firms are
important. In England and Scotland, 23% of registered
businesses are based in rural locations while the
proportions sit at 45% and 58% for Wales and Northern
Ireland respectively.
Not only do rural areas host a significant share of
businesses, they also host more businesses per head
than urban areas. This is true in every UK Nation.
However, rural businesses tend to be smaller, employing
fewer people on average than their urban counterparts.
There are also some significant differences in the sector
split, with the prominence of agriculture standing out as
the biggest. Agriculture, forestry and fishing accounts for
1% to 2% of businesses in urban areas compared to 15%
in rural areas in England, 26% in Wales, 29% in Scotland
and 41% in Northern Ireland. Businesses in urban areas,
on the other hand, are generally more diverse, with no
sector accounting for more than 20% of registered
businesses across combined urban areas in each of the
UK nations (figure 3.1).
A higher dependence on sectors with lower productivity,
such as agriculture and tourism, and a higher proportion
of smaller businesses can in part help explain lower
productivity in some rural areas. Areas classed as
predominantly rural account for a disproportionately
small share of England’s gross value added (GVA)18 and
have productivity, measured by GVA per workforce job,
that is just 83% of the average for England. This is lower
than predominately urban areas (excluding London)
where productivity is 93% of the England average, urban
with significant rural areas where it is 95%, and London
which sits at 137% of the England average.
Fig 3.1
Rural and urban business characteristics: weighted
average of all four UK Nations 
Source: Analysis of data from ONS and IBRD
Registered businesses per 10,000 people (2019)
Rural
574
Urban
401
Employees per registered enterprise
Rural
6.7
Urban
13.0
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Productivity differences between rural and urban areas
are therefore a likely factor in explaining productivity
differences and inequalities both across and within the
regions and nations of the UK. Closing the productivity
gap between rural and urban businesses could therefore
make a meaningful impact toward addressing both
within and between-region inequality at the same time.
Rural businesses do not just differ from their urban
counterparts in their size, productivity and sectoral mix,
they also vary slightly in their attitudes towards the
environment. A 2021 survey by the National Innovation
Centre for Rural Enterprise (NICRE) found that 45% of
rural business always consider the environmental
implications of decisions and 36% agree that businesses’
environmental impact should be part of their bottom
line. For urban firms, the proportions are lower at 37%
and 29% respectively.19
Fig 3.2
Registered businesses by sector (%) - range across UK nations (2019)
Source: Defra, Scottish Government, NISRA and ONS
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For the agricultural sector, which is heavily reliant on the
environment, and sensitive to a variety of environmental
factors, it is partly self-preservation that has necessitated
taking a leading approach on climate change.
The National Farming Union (NFU) which has 55,000
members across England and Wales has committed to
achieving a carbon negative agricultural sector by 2040.
This will make a significant contribution to achieving
the UK's net zero target by 2050, as UK farms currently
account for around 10% of annual greenhouse gas
(GHG) emissions in the UK. As further explained in the
2019 report ‘Achieving Net Zero: Farming’s 2040 Goal’20
the land-based economy is, however, uniquely positioned
to be part of the solution, helping to capture GHGs in the
air, and turn them into food, fibres and fuel.
Given rural businesses will be a key part of addressing
the UK’s productivity and environmental challenges,
understanding both their attitudes towards finance and
their use of finance is vital to the Bank.
Attitudes to finance are similar among rural
and urban firms but urban firms are more likely
to have a trained financial decision-maker
Business owners in rural and urban areas have similar
attitudes towards external finance. In both groups
around three in 10 are happy to use external finance to
help their business grow and develop. Awareness levels
of different finance types are similar. When respondents
were asked which types of external finance they were
aware of, the mean number of types mentioned was 5.5
for rural firms and 5.6 for urban while the proportion that
were not aware of any was the same at 5%.
A slightly higher proportion of urban businesses
mentioned six or more different finance types compared
to rural (43% vs 41%). This might be because a higher
share of urban firms have financially trained or qualified
financial decision makers. This is true for zero employee,
micro (1-9 employee), and small (10-50 employee)
businesses, but there is no difference among medium
(51-250 employee) businesses. Overall, around 27% of
urban firms have financial expertise in their business
compared to 24% of rural firms (figure 3.3), but this rises
to 70% for medium-sized businesses.
Fig 3.3
Attitudes to finance, awareness levels and presence
of qualified financial decision makers
Source: BVA/BDRC SME Finance Monitor to Q4 2020,
British Business Bank Finance Survey (2020)
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Although rural and urban firms are relatively similar in
their attitudes towards finance, their usage of finance
has shown different patterns in 2020.
A greater share of rural businesses were using
external finance in 2020 than urban businesses
Evidence from the BVA/BDRC SME Finance Monitor
suggests that rural firms were more likely to be using
some form of external finance than urban firms in 2020.
Around 39% of rural firms were currently using a form of
external finance compared to just 36% of urban
businesses (figure 3.4). This pattern appears to hold for
businesses across the size spectrum and across most
broad sectoral groups (figure 3.4 and figure 3.5).
The gap in use of external finance is largest for businesses
with 51-250 employees, at six percentage points for
businesses with a comparable credit score in the same
quarter. As the proportion of businesses in this size band
with a financially qualified decision maker is the same
in urban and rural areas, it is unlikely that awareness
of different options, or readiness for finance, are the
explanation. The drivers of this gap are use of leasing and
hire purchase and, to a lesser extent, credit card finance.
Fig 3.4
Proportion currently using any external finance, by business size (2020)
Source: BVA/BDRC SME Finance Monitor to Q4 2020
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Use of leasing and hire purchase is five percentage
points higher in rural businesses with 51-250 employees
than urban businesses of the same size with the same
credit score, while credit card use is three percentage
points higher.
This may indicate some difficulties in accessing finance for
medium-sized businesses in rural areas that their smaller
counterparts do not face. As highlighted in research based
on a survey of financial intermediaries done for the Bank
by Ipsos Mori21, rural areas have financial ecosystems that
are “naturally less dense”, leaving businesses in those areas
less able to access referral networks. The research also
identified “a tendency among lenders to prioritise building
relationships with businesses in urban areas”. The SME
Finance Monitor provides some indication that this may
happen, particularly at the larger end of the scale, leaving
rural businesses more likely to use credit card and leasing
or hire purchase finance to cover asset purchases, working
capital requirements, and any shortfalls in cashflow than
urban businesses of the same size.
Nevertheless, this is unlikely to explain any differences
that are seen in the overall business population, as
businesses of this size make up less than 1% of the UK
smaller business population. This gap is more likely to be
Fig 3.5
Proportion currently using any external finance, by sector (2020)
Source: BVA/BDRC SME Finance Monitor to Q4 2020
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driven by sector demographics, where larger businesses
in rural areas are more likely to operate in sectors that
make greater use of external finance.
One such sector is agriculture, hunting and forestry,
fishing, which is likely driving some of the differences
seen between urban and rural businesses. This is one of
the largest sectors by number of registered businesses in
rural areas, but is the smallest in urban areas. It is also the
greatest user of external finance in rural areas. Although
it also exhibits the largest gap between rural and urban
businesses using external finance, given the small number
of urban firms in the sample, estimates of this gap are not
reliable. Fortunately, this is not particularly important in
explaining the bigger picture, as there are very few firms
in this sector operating in urban areas.
The sample of rural firms is larger, which ensures that
estimates drawn from these responses are more reliable
and can be comfortably compared with the rest of the
rural business population. As a considerable proportion
of businesses in rural areas are in this sector, this is
important for explaining what is seen when comparing
urban and rural businesses overall.
Fig 3.6
Proportion of rural and urban businesses using external finance by finance type
Source: BVA/BDRC SME Finance Monitor to Q4 2020
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There are several forms of finance that rural firms used
in greater proportions than their urban counterparts
in 2020. The biggest gaps were seen for overdrafts,
leasing and hire purchase and credit cards, with smaller
gaps in the usage rates of bank loans and local or central
government grants (figure 3.6). Generally, the gap
between businesses in the agriculture and related sector
and others is larger than the gap between rural and
urban businesses.
The proportion of businesses currently using some form
of external finance fell in 2020 relative to 2019, in both
rural and urban areas. Given the challenges of the year,
this likely reflects both the success that non-debt
government schemes such as furlough, tax deferrals and
the self-employment income support scheme (SEISS)
have had in supporting businesses, as well as the reduced
appetite for investment in the face of a highly uncertain
economic outlook. While 45% of rural and urban
businesses were using some form of external finance in
2019, this fell to 39% of rural businesses and 36% of urban
businesses in 2020. Usage in 2020 is as high as 48% for
rural firms in the agriculture, hunting and forestry, fishing
sector (down from 58% in 2019), while it falls to 38% for
other rural businesses when it is excluded.
Agriculture, hunting and forestry, fishing made the
greatest use of bank loans and bank overdrafts by sector
in rural areas in 2020. 16% of firms in this sector in rural
areas had a bank loan in 2020, compared to 11% of all
other businesses in rural areas and 10% of urban ones.
The gap for overdrafts is larger: 26% of rural businesses
in the agriculture, hunting and forestry, fishing sector
were using an overdraft in 2020, compared to 15% of all
other rural firms, and 12% of urban ones. This sector also
made the second-greatest use of leasing and hire
purchase in rural areas in 2020. 16% of rural firms in the
agriculture, hunting and forestry, fishing sector were
using leasing and hire purchase in 2020, compared to
11% of all other firms in rural areas, and 8% of urban
ones. Although the use of finance by rural businesses
more closely resembles that of urban businesses when
the agriculture and related sector is excluded, some
differences remain suggesting that factors other than
sector mix are also making an impact.
The fall in the proportion of businesses using external
finance in 2020 was driven by a reduction in businesses
using an overdraft, credit card, and leasing or hire
purchase agreement. Overdraft and leasing and hire
purchase use fell more in urban areas, causing a gap to
open between the proportion of rural and urban
businesses using external finance.
As these types of finance are generally used either for
working capital or linked to the purchase of an asset,
this may be driven by businesses in rural areas being less
impacted by lockdown restrictions and continuing to
do business as usual to a greater extent. GDP data22
confirms this was the case for the agriculture, forestry
and fishing sector, located almost entirely in rural areas,
which saw a relatively modest decline in output from
Q1 to Q2 of 2020 at 13.6%. Rates of decline were much
steeper in other sectors including services where output
fell by 18.0% over the same period, manufacturing
which shrank by 20.9%, and construction where the
contraction was 33.7%.
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The data shows that although 67% of both rural and
urban firms seeking finance facilities between Q2 and Q4
of 2020 were doing so for cash flow reasons, one in five
urban firms specifically mentioned the impact of the
pandemic, compared to one in seven among rural firms.
Despite an overall reduction in finance usage in 2020,
there was an increase in the proportion of businesses
currently using bank loans and central or local
government grants. This was seen in both rural and
urban areas to a similar extent, reflecting the widespread
availability and take-up of measures put in place by the
government to support the economy through the shock
of the pandemic. These included non-repayable grants,
as well as the covid loan schemes which in most cases
gave borrowers an interest-free window before
repayments were due. It’s likely that in some cases these
schemes were used to pay off pre-existing debt and
as a substitute for other forms of finance, as well as by
previous non-borrowers to mitigate the unprecedented
shocks of 2020, which explains some of the trends
seen in Figure 3.6.23
Despite the wide range of measures available to support
all businesses in 2020, almost as many reported
injecting personal funds in the last 12 months as currently
using some form of external finance.
Despite higher external finance use, 2020 also
saw a greater share of rural business owners
injecting personal funds than their urban
counterparts
The Bank’s own 2020 Business Finance Survey found that
37% of rural-based business owners had injected personal
funds into their business in the last 12 months compared to
32% of their urban counterparts. The majority in both
groups stated that this was something they felt they had
no choice about and had to do, but again this proportion
was higher among rural business owners (figure 3.7).
Fig 3.7
Proportion of business owners injecting personal
funds in the last 12 months by reason
Source: British Business Bank Finance Survey (2020)
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The widest differences between rural and urban firms
in the injection of personal funds were found in the
construction, other services, and distribution sectors
where the gaps were 10, 10 and seven percentage points
respectively. This gap rises to 14 percentage points for
construction when looking just at the proportion of
firms that felt they had no choice but to inject personal
funds (figure 3.8).
The fact that 2020 saw rural businesses both using
external finance and injecting their own personal funds
in greater proportions than urban firms highlights just
how difficult the year was, with the Brexit transition
period ending just as the pandemic began. Now that
the UK’s successful vaccine rollout has led to the
removal of most restrictions on economic activity, the
period ahead should allow many more rural businesses
to progress towards their ambitions and in doing so
contribute to the UK’s environmental and productivity-
related ambitions too.
Fig 3.8
Proportion injecting personal funds by reason, by sector
Source: British Business Bank Finance Survey (2020)
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The British Business Bank's programmes
already support large numbers of rural
businesses and will continue to do as the
UK economy recovers
The Bank’s national and regional programmes already
operate across many rural settings. In particular, the
Bank’s Regional Funds have a strong track record of
investing in rural businesses with more than 320 loans
and investments made in rural businesses since the first
of the funds launched in 2017. This represents around
20% of the investments made by the funds so far.
These Regional Fund investments and the support
provided by the Bank’s wider portfolio are already playing
a small part in the success of the UK’s rural economies
and we are determined that this role continues. The
Bank’s long-term strategy places significant weight on
addressing geographic imbalances in access to finance
and offering world-leading support to rural businesses
is a vital part of this.
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Case study
Appleby Creamery
Programme: Northern Powerhouse
Investment Fund
Cumbria-based Appleby Creamery, an
artisan cheese maker, has boosted its
offering over the last few years following
a £250,000 loan from NPIF – FW Capital
Debt Finance, managed by FW Capital
and part of the Northern Powerhouse
Investment Fund (NPIF).
Founded in 2008, Appleby Creamery is
located in the historic market town of
Appleby-in-Westmorland in the Eden Valley.
The business offers a range of premium
handmade soft, hard and blue cheeses and is
a fully accredited Kosher cheese producer.
The business used the loan to expand and
improve their industrial unit. The investment
also provided the capital needed to help meet
the surge in demand forecast after winning a
number of significant new contracts in the UK.
They also boosted their online product range
during the UK’s national lockdowns.
Managing Director of Appleby Creamery,
Maurice Walton said: “As a growing business
we’re faced with the challenges of accessing
finance, as well as the challenges the
pandemic has posed to all small businesses
over the last 18 months.
Through this investment from NPIF, we’ve had
a platform to grow, adapt and make the most
of the market opportunities available to us.”
The Northern Powerhouse Investment Fund
project is supported financially by the
European Union using funding from the
European Regional Development Fund (ERDF)
as part of the European Structural and
Investment Funds Growth Programme 2014-
2020 and the European Investment Bank.
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The British Business
Bank across the UK
– Since our formation, the British Business Bank's programmes
have benefitted businesses across the UK
– Our Regional Funds and Regional Angels programmes provide
additional options for businesses in targeted regions
– The British Business Bank is committed to supporting the
continued recovery and growth of UK businesses wherever
they are based
Part A - 1.4
The British Business Bank has a mission to
drive sustainable growth and prosperity
across the UK and enable the transition to
a net zero economy by improving access
to finance for smaller businesses. Our
mission is clear that we are here to benefit
smaller businesses in all parts of the UK,
building on our track record forged over
several years.
Since our formation the British Business
Bank's programmes have benefitted
businesses across the UK
The Bank was established in 2014 with a range of
programmes targeting start-ups, growing firms and
other viable under-funded businesses. Our initial
endowment of programmes gave the Bank more than
30,000 beneficiary companies of which around
24,000 were based outside of London24.
In the years leading up to the pandemic, our scope
expanded rapidly, reaching a stock of 98,000
beneficiary businesses in March 2020. Of these
beneficiaries, 83,000 were based outside of London,
a more than threefold increase on the number
supported in 2014.
The Bank’s whole portfolio has helped us reach
such a large number of companies across the UK.
For example, our programmes related to both asset
finance, and invoice finance and asset-based lending
are distributed broadly in line with the business
population25. Our equity portfolio also contributes
strongly as the majority of Bank-backed deals now
go to companies outside London. Just 42% of
Bank-backed equity deals went to London businesses
in 2020, a share that sits five percentage points below
the wider market26.
Start Up Loans are another important contributor to the
Bank’s geographic spread. Since the scheme started in
2012, more than 85,000 loans have been issued to
entrepreneurs across the UK with more than 65,000 of
these outside London. From the Highland region of
Scotland, where more than 250 loans have been issued,
to Cornwall at the Southern tip of the UK with more than
1,100 loans, Start Up Loans have developed businesses
and entrepreneurial skills across the length and breadth
of the UK.
The most recent months in the Bank’s history have,
however, seen the entrepreneurial skills developed by
programmes including Start Up Loans tested like never
before. The emergence of the Covid-19 pandemic
created huge disruptions to UK businesses and spurred
the Bank to work rapidly with others to launch a series of
programmes designed to help.
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The successive launch of the Coronavirus Business
Interruption Loan Scheme (CBILS), the Coronavirus
Large Business Interruption Loan Scheme (CLBILS), the
Bounce Back Loan Scheme (BBLS) and Future Fund
resulted in the Bank’s products providing support to
more than 1.8 million businesses by May 2021, a huge
increase in scale relative to just a few months prior
(figure 4.1).
This cohort of firms drawing on support spans the whole
of the UK, and encouragingly, the patterns of usage for
the guarantee schemes closely match the distribution of
the underlying business population27. This demonstrates
that all parts of the UK were hit hard by the pandemic
but importantly, also shows the Bank’s commitment to
supporting businesses wherever they are based.
Our Regional Funds and Regional Angels
programmes provide additional options for
businesses in targeted regions
Businesses across the UK can face issues accessing
finance from a number of causes. These could include
the characteristics of the business, for example new
enterprises may lack financial data to evidence their
prospects28, or the impact of external circumstances,
such as the economic environment29.
Businesses in all parts of the UK face these challenges
but we know in certain parts of the UK, businesses not
only face characteristic-based or macroeconomic
challenges, they also face place-based challenges.
These challenges could relate to the ease of finding
information about finance, or of finding providers to
approach. They could also relate to the extent to which
available finance providers can offer the precise
products, financial amounts and expertise needed.
In order to provide additional help to businesses
facing these kinds of challenges, the Bank set up both
the Regional Funds and Regional Angels programmes.
The Bank’s Regional Funds were the first of these
programmes established, starting with the Northern
Powerhouse Investment Fund (NPIF) which began
investing in early 2017. This was followed by the
Midlands Engine Investment Fund (MEIF) in August
2017 and the Cornwall and Isles of Scilly Fund (CIOSIF)
in June 2018. All three funds are designed to improve
finance conditions in their respective regions through
offering both debt and equity funding to eligible
small businesses.
Fig 4.1
Covid Schemes Relative to the Bank’s
pre-pandemic stock
Source: British Business Bank Management Information
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The three funds have all hit significant investment
milestones already with NPIF passing the £250m
investment mark in June 202130, MEIF reaching £100m
invested in March 202131 and CIOSIF hitting the £10m
point in November 202032. Part of the operational model
for each of these funds involves appointing private
sector fund managers who establish a physical presence
in the regions they support.
As sections 1.2 and 1.3 have demonstrated, distances
between finance providers and businesses matter and
the needs of businesses can vary in different types of
place. Through embedding professional fund managers
in the regions the funds support, NPIF, MEIF and CIOSIF
have been able to assemble an impressive track record
of investing in businesses in harder to reach areas.
Across all three funds, 62% of investments and loans
so far have gone to companies based outside of major
conurbations, of which around a third were based in the
towns, villages and hamlets that are classed as rural.
Looking specifically at the equity investments made by
the Regional Funds, 58% have gone to companies
outside major conurbations. For comparison, in the
same regions, only 50% of equity investments not
involving the Regional Funds or other government funds
went to companies outside major conurbations between
2017 and 2020.
These investments and loans are already empowering
businesses to do things like boost their workforce skills,
increase spending on research and development, invest
in net zero and introduce new products and services.
They are also stimulating the creation of jobs, and not
just average jobs but a high proportion of high-quality
jobs paying top-quartile salaries33.
The Regional Angels programmes is a newer initiative
and was set up in 2018 to increase the availability of
early stage equity capital in areas where this type of
finance is less readily available. Since the first
commitments through the programme were made, more
than £25m has been deployed in over 250 investments.
As the Regional Funds and Regional Angels programmes
continue to invest, these economic impacts will be
experienced by more and more businesses. However, to
ensure we create a truly lasting legacy, the Bank is
already thinking about how the next generation of these
programmes and our wider portfolio can combat
regional inequalities.
A key strand of this continued effort to combat regional
inequality will come from the Bank’s UK Network. The
UK Network provides dedicated field managers for each
part of the UK who work with small business finance
intermediaries to enhance business finance ecosystems
across the UK, so smaller businesses, wherever they are,
can grow and prosper.
The British Business Bank is committed to
supporting the continued recovery and growth
of UK businesses wherever they are based
As the UK economy continues to make up for lost
ground, an increasing share of entrepreneurs and
businesses will turn their attention from survival back on
to growth. The Bank will be there to help businesses
achieve this growth, sustainably and in ways that
enhance our transition to a net zero economy with
prosperity across the UK.
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Case study
Fittamamma
Programme: Cornwall and Isles of Scilly
Investment Fund
Fittamamma, the maternity fitness wear
brand, has secured investment from
The Cornwall and Isles of Scilly Investment
Fund, (CIOSIF).
Fittamamma will receive a £150,000 loan
made up of £131,250 from CIOSIF and
£18,750 from SWIG Finance, who work with
The FSE Group, the appointed CIOSIF Fund
Manager, on delivering smaller business loans.
As the business grows over the next three
years, it is forecast to create five new jobs.
The business, based in the village of Par in
Cornwall, was founded in 2012 by mother
and daughter Deborah Hazeldean and
Alexandra McCabe after they spotted a gap
in the market for stylish, well-designed, and
supportive maternity fitness wear. The range
was developed over time, with a particular
eye on the detail, ensuring it would meet the
ever-changing body needs of pregnant
women wishing to enjoy the benefits of
exercise during and after pregnancy.
The team worked with the University of
Portsmouth to carry out independent tests
on the new range, with the results proving
that the uniquely designed Fittamamma
vests and leggings not only look stylish but
provide important, essential support where
it’s most needed, reducing “bump bounce”
by a significant 48% when compared with
other maternity ranges.
CIOSIF is supported financially by the
European Union using funding from the
European Regional Development Fund
(ERDF) as part of the European Structural
and Investment Funds Growth Programme
2014-2020. Further investment has come
from the Cornwall and Isles of Scilly LEP
and HM Government.
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Regions and nations
finance data
Part B - 2.1
This section sets out the datapoints needed
to understand finance markets in each
region and nation. The following tables
provide data on economic context, finance
demand, supply and ecosystems, and on
the British Business Bank's activity.