Coronavirus lockdown has disproportionately affected regional SMEs

The Coronavirus pandemic could deepen the North-South divide in the UK according to new Labour Party leader Sir Keir Starmer. He did, however, make it clear that the problem could be alleviated with a fairer distribution of investment into the Northern regions to help support UK SMEs. 

A lack of investment and funding is undoubtedly leading to ambitious and innovative SMEs across the UK going out of business, while uncertainty has led to many SMEs that were previously looking to grow pausing their plans. This effect, already highlights a stark difference between London and other regions across the UK. This has been increased by lockdown as London-based fintechs and financial services firms continue to trade through remote working while many regional firms have been forced to shut up shop. 

IW Capital has already started to encourage development in regions outside of London, and have invested in Impact Recycling - a company revolutionising the plastic recycling process based in Newcastle - and Billian - an innovative road-mending firm founded in Sheffield.

As such, they have commissioned research that examines entrepreneurial sentiment and what is holding founders back:

Key UK Findings

  • Over 20% of entrepreneurs in the North have never met an investor and do not know how to initiate contact with one (27% in Manchester and 30% in Leeds) 

  • Nearly 20% of potential entrepreneurs in the North West cannot get their business idea off the ground due to a lack of funding 

  • Around 14% of entrepreneurs have had to turn to friends and family for funding due to a lack of available investment 

Luke Davis, CEO of IW Capital and small business expert, discusses the need to support regional investment:

“This period has been incredibly difficult for businesses up and down the country but it does seem to have impacted regional businesses harder than many in the capital. One of the key points in economic recovery in the next year or so is to allow every region of the UK to come roaring back with confidence and the right support in place.

As private finance providers, we have a responsibility to try to bridge this gap. There are fantastic businesses in the North of England with a huge amount of growth potential that may be slipping through the net. This is why we are actively looking to invest in these regions and are looking into employing investment directors specifically for the region.

State-sponsored initiatives and infrastructure investment will be key to giving businesses confidence but the majority of funding is likely to come from private sources. And given that bank lending to SMEs remains a key issue limiting growth, private equity through schemes such as the EIS will be crucial to unlocking the growth potential of these firms.”

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