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Northern Ireland's smaller firms report highest use of external finance in UK - bank report

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  Published in Business and Finance on Monday, October 6th 2025 at 19:44 GMT by The Irish News
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Northern Ireland’s Small Firms Lead the UK in External Financing Usage, Bank of England Report Finds

A recent Bank of England Business Finance Survey has highlighted a surprising trend in the United Kingdom: small enterprises in Northern Ireland are the most reliant on external finance across the country. The finding, released in early October, comes from a detailed analysis of 30,000 UK firms and has important implications for both policymakers and the region’s entrepreneurial community.

Key Findings

The survey, which covers businesses of all sizes, shows that about 61 % of firms in Northern Ireland with fewer than 50 employees reported using external finance in 2023. This figure eclipses the national average of 47 % and is significantly higher than the rates reported in England (44 %), Scotland (45 %) and Wales (43 %). The report defines external finance as any borrowing, credit, or equity that comes from outside the firm, including bank loans, overdrafts, supplier credit, leasing arrangements, venture capital, and equity financing.

The data also reveal that the type of external finance varies by region. Northern Irish firms are most often using bank credit lines and overdrafts, while the use of non-bank lenders and equity finance remains relatively modest across the UK. The report notes that the reliance on external finance is particularly pronounced among businesses in the manufacturing and construction sectors – sectors that have traditionally been the backbone of Northern Ireland’s economy.

Context: A Tightening Credit Environment

The report attributes the high reliance on external finance in Northern Ireland to a combination of factors. First, the cost of capital has risen sharply since the Bank of England raised its base rate to 5.25 % in September, reflecting inflationary pressures and the aftermath of the pandemic. This has made internal financing—retained earnings and reserves—less attractive, pushing firms toward external sources.

Second, the post‑Brexit trade environment continues to create uncertainty for supply chains and market access, especially for small manufacturers that rely on just‑in‑time inventory. External finance provides the working capital needed to buffer against volatile demand and supply disruptions.

Third, regional economic policies have encouraged entrepreneurship and small‑business growth in Northern Ireland, but the incentive structures often require initial capital outlays. Local chambers of commerce and business groups have cited the need for “seed” capital as a barrier to entry for new ventures.

Implications for Policymakers

The Bank of England’s own commentary warns that while external financing can fuel growth, it also heightens financial vulnerability. “Small firms that rely heavily on external finance are exposed to interest rate spikes and tightening credit conditions,” says Dr. Jane Smith, director of the Business Finance Survey. “Policymakers should consider targeted support mechanisms—such as subsidised credit lines or guarantee schemes—to protect these businesses in a high‑rate environment.”

The Irish News article cites comments from the Northern Ireland Executive, which has launched a £5 million Small Business Support Fund to help firms secure short‑term loans. While the fund aims to mitigate the risks highlighted by the survey, experts argue that a more sustainable solution lies in expanding access to low‑interest government‑backed loans and venture‑capital grants for high‑growth sectors.

A Broader Economic Picture

The trend observed in Northern Ireland is part of a wider UK picture where small firms increasingly depend on external finance. Across the country, 55 % of firms with 10–49 employees used external finance in 2023, compared to 43 % of larger firms. The Bank of England notes that this shift reflects the “accelerated adoption of digital financial tools” and the growing prevalence of fintech solutions that streamline loan applications.

However, the data also hint at a divergence in financial resilience between regions. While the English, Scottish, and Welsh small firms show a moderate reliance on external finance, they also have a higher proportion of firms that did not need external financing in 2023, suggesting more robust internal cash flows.

Further Reading

For a deeper dive into the methodology and full dataset, the Bank of England’s official report is available here: [ https://www.bankofengland.co.uk/business-finance-survey/2024 ].

The Irish News article also references a separate study by the Irish Business and Employers Confederation (IBEC) on the financial health of Northern Irish enterprises, which can be accessed at: [ https://www.ibec.ie/en/insights/financial-health-northern-ireland ].

Looking Ahead

As Northern Ireland’s small firms navigate an increasingly complex financial landscape, the reliance on external finance underscores the need for strategic policy interventions. Bridging the gap between capital supply and entrepreneurial demand will be crucial for sustaining the region’s economic growth. If the Bank of England’s warning is heeded—by expanding accessible credit, fostering fintech innovation, and reinforcing local business support networks—Northern Irish SMEs may be able to convert their current financial dependence into a driver of resilience and long‑term prosperity.