The British Business Bank’s Small Business Finance Markets 2025/26 report, published today, highlights a challenging year for business dynamism in Wales, with declines in the number of private sector businesses and a contraction in equity investment activity.
While smaller businesses remain central to employment across Wales, the report finds lower levels of business creation and investment. Despite these pressures, targeted investment programmes and growing activity in innovation-led sectors such as artificial intelligence continue to support opportunities for future growth.
Equity investment deals and values decline in Wales
Equity investment activity in Wales fell significantly in the first three quarters of 2025. The number of equity deals declined by 53% on the same period in 2024 – the largest fall recorded across all UK Nations and regions. This contrasts with limited deal volume growth seen in a small number of regions, including Northern Ireland, Yorkshire and the West Midlands. Equity investment values also dropped substantially, falling by 63%, representing the third largest decline nationally.
The fall in deal numbers marks a reversal of recent equity trends in Wales. While investment values had been declining in recent years, deal volumes had previously been increasing, bucking the wider UK trend, where the number of equity deals had been falling.
Across the UK as a whole, equity investment declined, although at a slower rate than in Wales, with deal numbers down 23% and investment value down 20%.
AI investment clear growth area
Across the UK, AI-focused businesses continued to attract strong investor interest in 2025, accounting for a significant share of total equity investment activity, as investors increasingly backed innovation-led firms with scalable technologies. AI companies attracted ?2.9bn in equity investment across 323 deals during the first three quarters of 2025, highlighting continued investor focus on innovation.
Despite the challenging equity investment landscape in Wales, AI is emerging as a notable area of growth, mirroring trends seen across the wider UK market. Two major AI Growth Zones have been announced for Wales as of late 2025, aimed at establishing the region as a hub for AI development and data centres. The initiatives, backed by significant UK government and private investment, are expected to create over 8,400 jobs across South and North Wales.
In Wales, AI-focused businesses are beginning to benefit from this momentum through targeted support from the British Business Bank’s ?130m Investment Fund for Wales. Recent investments include Cardiff-based automation company Bots for That, which secured ?1.5m in equity funding to scale its AI-driven software platform, supporting product development and job creation. The Fund has also backed AI innovator Nisien.AI, enabling continued research, recruitment and commercial expansion.
Business population declines as start-up activity remains subdued
The overall private sector business population in Wales fell by 12% in 2025, contrasting with modest growth across much of the UK. The decline was largely driven by a reduction in unregistered businesses without employees, differing from the UK-wide trend where growth in the business population was supported by increases in this segment.
At the same time, business creation levels remained among the lowest in the UK. Wales recorded an enterprise rate of 742 businesses per 10,000 adults – around half the level seen in London (1,436) and below most UK regions. Across the UK overall, start-up activity showed modest improvement overall, with 314,000 new businesses created in 2025, up 1% year-on-year.
Business survival rates aligned with UK average but lag regional leaders
The five-year survival rate for Welsh businesses founded in 2019 stood at 38%, matching the UK average, but ranking joint third lowest among UK Nations and regions. Survival outcomes varied widely across the UK, with the highest rates recorded in the South West (44%) and Northern Ireland (43%).
Smaller businesses remain central to Welsh employment
Smaller businesses continue to play a significant role in Wales’s economy, accounting for 74% of total private sector employment – the second highest proportion among UK nations and regions, behind Northern Ireland (77%).
Employment in Wales is spread across a wide range of firm sizes, with the largest share concentrated in businesses employing fewer than 50 people, highlighting the importance of smaller firms to job creation and economic activity across the country.
UK-wide picture
Overall UK lending markets showed signs of gradual improvement, with gross SME bank lending increasing by 9% to ?68bn in 2025. Across the UK, challenger and specialist banks continued to expand their role in smaller business lending, accounting for 60% of gross SME bank lending in 2025. Wales has become an important hub for fintech and challenger banking activity, particularly in Cardiff, with several major firms having operations in the city including Monzo, Starling and Tandem, while Chetwood bank is based in Wrexham.
Susan Nightingale, Director, UK Network, Devolved Nations at the British Business Bank, said:“Smaller businesses remain fundamental to Wales’s economy, particularly as employers across communities and sectors. the findings in this year’s report highlight the pressures many businesses continue to face in a challenging economic environment including reduced investment activity and slower business creation.
”The British Business Bank is committed to improving access to finance and supporting innovation-led growth across Wales. Through initiatives such as the Investment Fund for Wales, we are helping ambitious businesses access the funding they need to scale and build resilience for the future.
“The Fund recently completed its largest investment to date – a ?3.5m equity investment into industrial services firm Advantiv Limited – marking an important milestone and supporting the company’s expansion, new UK locations and operational innovation.”
