Almost half of smaller businesses view reducing carbon emissions as a priority
In 2021, almost half (47%) of smaller businesses viewed reducing their carbon emissions or environmental impact to be a priority for their business and one in five (22%) would use external finance to help transition their business to net zero. Just over one in 10 (11%) of smaller businesses have already used external finance to support net zero actions.[2]
In contrast, almost three quarters of smaller businesses (71%) viewed maintaining or increasing sales to be a high priority, and almost two-fifths (37%) would be happy to use external finance to grow their business.
Research suggests equity investors are increasingly considering environmental factors in investment decisions. A survey of UK VC fund managers conducted by the British Business Bank indicated that the vast majority (83%) are now taking into account environmental factors within investment decision making, and more than half (52%) see ESG factors as a significant part of their investment decision making process. This has in turn led to an increase in clean tech investment in the market.
In 2021, the British Business Bank introduced a new climate change objective that commits it to supporting the UK’s transition to a net zero economy, alongside joining relevant initiatives such as the Race to Zero campaign and Business Ambition 1.5C.
Half of Ethnic Minority-led businesses are open to using finance for growth
The report also indicates that Ethnic Minority-led businesses are more open to using finance and more ambitious for business growth but access to finance remains an issue. Half (50%) of Ethnic Minority-led businesses are open to using finance for growth compared to a third (32%) of White-led businesses. More Ethnic Minority-led businesses (64%) have ambitions for significant growth compared to 39% White-led businesses.
Despite this, Ethnic Minority-led businesses are more likely to be discouraged from applying for external finance and having their application turned down, leading to negative impacts on their business. Although rejection rates have declined in recent quarters, most likely reflecting the impact of government-backed loan schemes, they remain significantly above those for White-led firms, with data showing that 18% of Ethnic Minority-led businesses were turned down for finance between Q3 2020 and Q2 2021, compared to only 10% of their White counterparts.
As a consequence, Ethnic Minority-led firms are around twice as likely to cite access to finance as a barrier (23%) than White-led businesses (12%). Additionally, most (56%) Ethnic Minority-led businesses currently using finance agreed they thought it would be difficult for them to obtain finance again, compared to 42% of White-led businesses.
Amongst female-led businesses, appetite for external finance has significantly increased to 31% in Q2 2020-Q2 2021, but remains lower than for male-led businesses at 39%. Female-led businesses are also more likely than male-led businesses to be discouraged from applying for finance, citing issues such as uncertainty over where to find finance and concern over the application process being too burdensome. Despite this, only 12% of female-led businesses view access to finance as a barrier, broadly in line with male-led businesses (13%).
The British Business Bank runs the Start Up Loans programme to help entrepreneurs from under-represented backgrounds start up and scale a business. Around 36,000 (40%) of loans have gone to female entrepreneurs and around 18,000 (21%) to entrepreneurs who belong to an Ethnic Minority group (excluding white minorities): almost 8,000 (9%) have gone to female entrepreneurs from Ethnic Minority backgrounds.
[1] After the data cut off for the Small Business Finance Markets 2021/22 report, Beauhurst released its “The Deal” report on 15th February. Analysis of the data from that report shows that SMEs received £18.1bn of equity investment in 2021, up 88% on 2020.
[2] Smaller businesses and the transition to net zero, British Business Bank, October 2021
