UK businesses are facing increasingly turbulent business forecasts as Brexit negotiations have progressed, and as analysts examine the possible repercussions of a potentially unfavorable deal. The Bank of England recently warned that EU businesses are not doing enough to ensure that they can keep operating in a post-Brexit UK, and that this may lead to a significant loss of financing resources for businesses in the country.
According to the Bank of England, EU member states currently provide about 10% of all lending to UK businesses. All of these would lose their authorisation to operate in Britain after Brexit occurs unless they begin seeking authorisation to continue operating in the first quarter of 2018. Even if they all did, there is no guarantee that applications could be processed in a timely manner. For UK businesses, and especially SMEs, this is just one of the issues pointing toward future cash flow disruptions.
What are UK small businesses facing?
UK businesses need to be prepared for real instability, far beyond just a bit of additional difficulty in getting a loan. In a worst case scenario, Brexit may catastrophically disrupt the UK’s international trade relationships, resulting in tariffs on incoming supplies and the implementation of foreign trade restrictions that could disrupt supply lines and make products uncompetitive in foreign markets.
Since the announcement of Brexit last year, the reduced value of the pound has provided a boost to export businesses and foreign investment, even as it depressed imports. However, this trend could be reversed at any time, as Parliament was told to expect a significant drop in foreign investment as global confidence in the UK’s status is dampened.
UK business are operating under a high level of uncertainty, and they have no clear view on whether coming changes will necessarily result in immediate cash flow problems, or how severe those might be. What they can expect is significant change, and change requires adaptation. Preparing for, and adapting to a post-Brexit environment will take time and investment, whether that means making institutional changes, expanding into new markets, or finding new sources of funding. To weather this storm well, businesses need to make robust financial preparations ahead of time.
Take advantage of standby finance facilities
One invaluable tool in cases like this is a free standby finance facility. These are a type of loan that can be negotiated ahead of time, and drawn upon at need at a later time. For a business that’s expecting financial instability in the future, there could hardly be a more appropriate resource.
Immediately after Brexit, the predicted loss of some EEA lenders could make it difficult to find financing, and result in higher interest rates for those who do manage to find a lender. A standby finance facility can help your business circumvent this issue ahead of time. Simply negotiate a loan now, and keep it in reserve until you need it. If, in a best case scenario, the UK comes to a comprehensive and mutually beneficial economic arrangement with the EU, and manages to properly prepare for international trade outside the EU, you can simply leave the loan untouched at no cost to your business.
Get ahead of late payments
Your business won’t be the only one trying to find your way in a new economic environment. Clients and suppliers within the UK and the EU will be trying to navigate their own financial quagmires. To ease this transition, it’s a good idea to implement financing tools that can help to ensure that that timely payments to you and your suppliers are never interrupted.
A great way to do this is to use invoice financing, customer payment plans, and supply chain finance together. The first two are tools that allow you to receive payment at the time that your invoices are issued, and the latter allows you to use an investor supported credit fund to pay supplier invoices early. Together, these tools ensure that you can continue to focus on doing your work, instead of trying to chase down late payments while evading your own frustrated suppliers.
Maintain constant communication with your financial institution
Financial institutions within the UK and abroad are watching this situation very closely. As negotiations continue, your financial institutions will be in the best position to understand the implications of any agreements (or lack thereof) that are made, and to provide expert guidance to their clients.
It’s a good idea to sit down with your institution’s representative and discuss your business’ particular situation as it relates to these coming changes. They’ll be able to provide a more nuanced perspective on how exposed your business might be to potential problems in the coming years, and what the best ways are to strategically mitigate any damage. By taking these preemptive steps now, you can ensure that your business enjoys stable cash flow during the transition, allowing you to remain productive and continue to assert yourself within your industry.