Small Business Statistics 2024: the full report

UK small business finance statistics

The ONS Business Impact of COVID-19 Survey (BICS) found that around 45% of SMEs saw turnover fall by at least 20% post-COVID. As a result, data sources show that smaller SMEs suffered more financial repercussions from COVID-19 than larger businesses.

How many UK small businesses use external finance?

On average, 56% of SMEs have sought external finance in the last three years, as found by the British Business Bank 2021 SME Finance survey.

In 2023, the “cautious funding trend” began, where investors scaled back in the UK due to financial uncertainty. It picked up again in October 2023 however, when a report revealed that venture capitalists were once again offering new growth prospects remotely, but the process was leading to burnout (in the form of Zoom fatigue) among entrepreneurs.

In the first half of 2023, the total capital raised amounted to £4.6 billion, representing a stark 70% decrease from the £15.3 billion raised during the same period in 2022. 

According to our exclusive Startups data, companies are exploring different ways to get funding depending on their industry.

• ⬆️Tech companies are boldly seeking money, with 54% actively looking for investors.
• ⬇️ Construction companies are being more cautious, choosing their funding wisely.
• ⬇️ Uncertainty in tourism and hospitality makes it hard for businesses to plan their funding.
• ⬆️ Rising costs (for example business electricity costs) are pushing 63% of businesses to consider getting more money from outside sources.

How many UK businesses have used private debt?

Private debt typically refers to loans made by non-bank lenders to firms. It is also sometimes referred to as direct lending or private credit.

According to Deloitte’s “Private Debt Deal Tracker Winter 2023 Update,” 1,823 private debt deals were completed in the UK in 2023. This represents a significant decrease compared to 2022, which saw 2,706 deals.

The UK private debt market saw a significant decline in 2023, with the total deal value dropping from £54.3 billion to £44.4 billion compared to 2022. While the average loan size also dipped slightly to £19 million, healthcare, business services, and technology sectors remained the most active sectors for private debt financing.

• ⬇️ Total deals in 2023: 1,823
• ⬇️ Change from 2022: -26.0%

Although this information is specific to the data provided by Deloitte and might not represent the entire UK private debt market, it’s a good place to start when trying to understand private debt figures.

How many small businesses are financed by venture capital?

Typically, small businesses in the UK only get a small slice of the venture capital (VC) pie.

This is because VC is usually targeted by larger companies with over 100 employees. VC deals usually take a number of years to complete (typically five to seven), with the aim of only making a return once a company has grown.

There were 57 venture capital trusts (VCTs) in the UK in 2021. This is a significant drop from ten years ago, when there were 128.

However, the amount of funds raised by VCTs has been on a rising trend in recent years and has more than doubled from 2009 to 2010.

Venture capital is still largely a boys’ club. According to data from private market data company Pitchbook, of VC deals made in 2017:

• Less than 1% went to entirely female teams
• 10% went to teams with mixed genders
• 89% went to entirely male teams

What alternative finance options can small businesses use?

In addition to equity and debt, the UK boasts a plethora of alternative finance options to fund a startup or drive business growth.

Small business crowdfunding 

Back in 2011, crowdfunding websites backed just eight deals in the UK. In 2020, this has ballooned to 433 successful campaigns. However, crowdfunding seems to have slowed as a result of the COVID-19 pandemic.

In the first semester of 2020, the UK crowdfunding market collected £103 million in total – a 25.4% fall compared to 2019.

Small business asset finance 

The BBB Small Business Finance Markets 2022 report shows that the SME asset market increased by 25% in 2021, giving it a total value of just under £20 billion.

This new growth follows a fall of 21% in 2020.

As the BBB report notes, such a noticeable market recovery means the annual new business level in 2021 was only 1% below 2019 (its pre-COVID peak).

Peer-to-peer small business lending 

Peer-to-peer lending, also abbreviated as P2P lending, is the practice of lending money to individuals or businesses using specialist digital platforms.

Data from the Cambridge Centre for Alternative Finance shows that peer-to-peer business lending is the funding method with the lowest volume. Still, it has been growing steadily since 2012, and was valued at £4 billion in 2020.

How has Brexit impacted small business investment?

Following the 2016 Brexit referendum, data from the Bank of England (BoE) shows that around 45% of businesses rank Brexit as one of the top sources of uncertainty for their business. Businesses with a higher level of Brexit uncertainty also enjoyed less investment growth post-referendum than those with lower Brexit uncertainty.

In its May 2021 Decision Maker Panel survey, the BoE asked business members how they thought the UK’s decision to leave the EU had affected investment. Businesses reported that in 2020, investment was 5.5% lower than it would have otherwise been.

Barriers to UK business

In 2020, we collected expert research between January and March 2020.

In 2024, the answers are a little different. The main concerns currently are:

Economic instability

UK businesses and entrepreneurs are feeling nervous about the future, with our recent exclusive Startups’ survey revealing that 24% of respondents see economic instability as their biggest concern. 

This worry seems to be impacting business confidence as well, with a majority (57%) of small businesses believing a change in government would be beneficial.

The ongoing conflicts between Ukraine and Russia, as well as Israel and Palestine, can have indirect yet significant impacts on small businesses in the UK. Firstly, these conflicts can lead to economic instability globally, affecting trade relations and causing fluctuations in currency exchange rates, which may impact the cost of imports and exports for UK businesses. 

Additionally, heightened tensions can result in increased uncertainty among investors, potentially leading to reduced consumer confidence and spending, which can directly affect small businesses relying on local consumer demand.

Employee retention

Despite employee salaries and benefits being their biggest expense (25%), 71% of UK startups are optimistic about meeting employee pay expectations in 2024, according to our exclusive Startups research. 

This optimism aligns with the ambitious growth plans of 80% of businesses, aiming to expand their workforce. However, attracting skilled workers might be challenging due to visa issues, highlighting a potential hiring hurdle amidst these growth aspirations. 

Only 20% consider workforce expansion their top priority, suggesting a nuanced approach to growth where talent acquisition might be a key factor.

How has Brexit affected UK small business?

More feedback from our Startup’s 2020 survey

Four years after leaving the European Union, the impact of Brexit on UK small businesses remains a complex and evolving story. While some sectors have adapted and even thrived, others continue to face challenges due to increased regulations, trade barriers, and the rapidly shifting landscape.

City AM surveyed UK SMEs in November 2021. It found that 64% of UK SMEs believe that Brexit has negatively influenced the UK economy.

• Two in five respondents said their costs had increased since the referendum results were announced, particularly costs associated with importing goods.
• 16% reported suffering a talent shortage as they were finding it harder to recruit staff due to stricter immigration laws.

Trade woes remain prominent

A 2024 report by Bibby Foreign Exchange found that over half (55%) of small businesses involved in international trade see Brexit as a significant challenge, impacting profitability and growth. New customs checks, tariffs, and administrative burdens have added complexity and cost, particularly for smaller firms with limited resources.

Labour shortages bite

The UK’s exit from the single market has also exacerbated pre-existing skills gaps in many sectors. A 2023 survey from the Federation of Small Businesses revealed that 45% of members struggled to hire skilled workers. This issue was further compounded by the rising cost of living, making it harder for businesses to compete for talent.

Looking ahead

The full picture of Brexit’s impact on UK small businesses is still unfolding. While the initial shockwaves may have subsided, ongoing challenges remain. Government initiatives aimed at easing trade barriers and supporting skills development are crucial, but the long-term consequences of Brexit for this vital sector will likely continue to be debated and analysed for years to come.

Further research on the potential barriers of technology from our 2020 Startups Survey

What barriers do female and minority small business owners face?

The gender funding gap has historically been a significant barrier to women starting a business.

According to investment tracker Dealroom, female entrepreneurs’ share of the UK’s multi-billion-pound VC funding market has stayed under 2% for the past 10 years.

Startups recently carried out our own investigation into the gender funding gap. We discovered that, on average, businesses with just one male founder received seven times more investment than women-owned firms.

Racial bias is also a factor in new business success.

The same BBB report found that 18% of external finance applications from ethnic-minority-led businesses were turned down. This is compared to 10% of white-led business applications.

Research from the Black Business Network has highlighted the impact this is having on Black startup owners. Only 43% of Black entrepreneurs said they trust banks to support them with the capital to grow their businesses.

While we’d hoped 2024 would bring more progression, there was a huge roadblock regarding investment at the start of the year: Until recently, investors on angel platforms needed to earn over £100k. But in January, the investment threshold soared to £170k. The steep increase may disproportionately impact the pool of female investors in the UK, particularly in regions where women earning over £170k are scarce or non-existent.

To make matters worse, artificial intelligence may contribute to the issue rather than help to resolve it.

• ⬆️ 79% of working women are employed in the occupations deemed most susceptible to AI automation. (UK Parliament of Science and Technology)
• ⬇️ Women make up half of the UK population, yet only 22% of AI and data professionals are presently females (Alan Turing Institute).
• ⬆️ Men currently constitute an average of 80% of AI professors (Alan Turing Institute)
• ⬇️ In 2023, the pay gap among full-time employees increased to 7.7%, up from 7.6% in 2022. 
• ⬇️ Black British and Asian employees in 2023/24 earned less (£13.53) median gross hourly pay than White employees (£14.35), which has been the case since 2012. (Office of National Statistics)

How has COVID-19 affected UK small businesses?

The COVID-19 pandemic has dealt a heavy blow to UK small businesses, leaving a lasting impact across various sectors. Lockdowns and restrictions triggered sharp sales declines, particularly in hospitality and recreation, with some businesses experiencing a staggering 57% revenue drop in April 2020. 

While some recovery has taken place, further waves and ongoing challenges like inflation keep the future uncertain.

Smaller businesses, often lacking reserves and operating in hard-hit sectors, faced a double whammy. They struggled to access finance due to their limited size and were disproportionately affected by closures. While government support schemes offered a lifeline, many companies accumulated debt during the crisis.

Which sectors were most impacted by COVID-19?

The top three sectors that were most impacted by COVID-19 in the UK are:

1. Hospitality:

• ⬇️ Revenue decline: 57% in April 2020
• ⬇️ Employment: Still 11% below pre-pandemic levels in October-December 2021
• ⬇️ Challenges: Lockdowns, restrictions on gatherings, ongoing staffing shortages, and rising costs

2. Arts, entertainment, and recreation:

• ⬇️ Revenue decline: Significant impact on cultural events, live performances, and leisure activities
• ⬇️ Challenges: Closures, cancellations, reduced capacity limits, and ongoing consumer cautiousness

3. Retail (non-essential):

• ⬇️ Revenue decline: Varies by subsector, but some non-essential stores faced significant drops
• ⬇️ Challenges: Closures, limited capacity, shift to online shopping, and changing consumer behaviour

How do UK small businesses compare to the US?

The landscapes of small businesses in the UK and US, while sharing similar aspirations, diverge in several notable areas, relevant for those businesses considering expanding into the US or seeking insights into US best practices.

• Number of businesses: the UK boasts a higher number of small businesses per capita, with an estimated 5.6 million compared to 30.7 million in the US. However, the US has a significantly larger population, leading to a higher overall number of small businesses.
• Size and structure: the UK leans towards sole proprietorships (56%), while the US favours employer firms (80%) (FSB, 2023; SBA, 2023). This indicates a potential difference in risk appetite and growth aspirations, with UK businesses potentially starting smaller and remaining solo-operated.
• Funding: accessing capital differs significantly between continents. US small businesses enjoy easier access to venture capital, with the US accounting for 78% of global VC investment in 2022. UK businesses, however, rely more on bank loans and government support (British Business Bank, 2023).
• Digital adoption: the US leads in ecommerce penetration, with 14.1% of retail sales happening online compared to 12.9% in the UK (Statista, 2023). This suggests greater digitalization among US small businesses, potentially impacting their reach and scalability.
• Innovation: the UK currently ranks higher in the Global Innovation Index (2nd) compared to the US (3rd). However, the US generates more patents, suggesting a focus on commercialising innovations (USPTO, 2023).
• Challenges and opportunities: both countries face similar challenges like rising costs, inflation, and talent shortages. However, the US market offers greater scale and access to capital, while the UK boasts a supportive regulatory environment and a skilled workforce.