Brexit – and the impact of political risks for UK SME’s.

Following the announcement of Brexit in 2016, we were able to spot different phenomena such as historic falls in the British pound, the British currency ended at 1.2774 dollars against 1.2992 in November 2018, a decrease of 1.68%. The market had not seen a decrease like that since October 2016, (a few months after the announcement of Brexit in June 2016). Indeed, it seems obvious that this referendum will have a major impact on SMEs in the United Kingdom for several reasons. It seems appropriate to look into this subject since Brexit is due to enter into force in just 24 days from now.

For the purpose of this article, we will touch upon the impact of Brexit on SMEs.
One of the main concerns is that British companies will deprive themselves of access to a vast free trade market, namely the eurozone. For this reason, it seems appropriate to recall the density of the European market for a UK based business.

The eurozone’s trade with the rest of the world represents some 15.6% of the total volume of world imports and exports, so depriving itself of such a market is prejudicial to SMEs that have trade-related activists.

Another factor that will have a strong impact on SMEs is the access to business loans within British financial institutions such as banks. This is due to the downgrade of the credit rating by rating agencies such as Standard & Poor, Moody’s or Fitch. Standard &Poor has downgraded the UK rating from AA+ to AA with a negative outlook. This perspective means that this rating could be further downgraded, making it even more challenging for financial institutions to lend, thus making it more difficult for SMEs to receive funding.

Following all these changes, many investors will leave British territory and will therefore impact the financing of SMEs.

In addition, the legislation has undergone changes concerning SMEs so that they can benefit from financing by financial institutions. As a result of the 2008 financial crisis, many laws were introduced to make access to credit increasingly demanding for SMEs in the British landscape.
One of the latest implications of Brexit, which will impact the SME market, concerns access to workforce, which will be much more complicated than before. More evidently, customs controls will be much more stringent requiring work VISAs for many countries.

If all these facts are combined, it would make sense to relax the banking system’s requirements for lending to SMEs.

If your business is heavily reliant on funding from the EU, it is worth taking steps in mitigating any risks of financing problems or seek alternative methods of financing. There are many options such as term loans or flexible invoice finance facilities. SMEs can consider receiving the latter from the likes of Populous World where we prioritise our client’s need for flexibility with single invoice discounting to ensure our clients receive only what they require.

Jeremy Carvalho
Populous World.