The Effect of Brexit on the Commercial Finance Sector

With the recent changes to MP alliances in Westminster, Brexit is set to fall further into chaos. Three Tory MPs have since resigned from the party to join the independent group set up by former Labour MPs, criticising the government for letting the ‘hard-line anti-EU awkward squad’ take over the party. Downing Street has also been warned that more Tory MPs could rebel against the government in a bid to prevent a no-deal Brexit.

With the government refusing to rule out the possibility of the UK leaving without a deal, growing concerns over the damage this could cause to businesses have given rise to the possibility of numerous Tory MPs being prepared to stop a no-deal exit if there is no agreement with the EU by March.

Amongst all of this chaos is the ever-looming prospect of uncertainty for every sector across the UK. From manufacturing to pharmaceuticals to the financial sector, the country is rife with businesses and organisations uncertain of their place in a post-Brexit United Kingdom.

Businesses are Stockpiling

In the wake of all the Brexit uncertainty, reports have shown that many sectors have begun to stockpile their assets in preparation of the UK crashing out of the EU in March without a deal. According to the IHS Markit and Chartered Institute of Procurement and Supply, which is closely watched by the Bank of England and the Treasury for warning signs from the UK economy, British factories raised their stocks in January at the fastest pace since records began in the 1990s.

Everything from the car manufacturer Jaguar Land Rover, who are stockpiling car parts, to supermarket giants Tesco and Marks & Spencers who are increasing their stocks of tinned food, marks the highest level of stockpiling activity for a G7 nation since comparable records began in 2007, and signals the inherent risks posed to the UK by the prospect of a no-deal Brexit.

Pro-Brexit campaigners argue that leaving the EU with no deal in place would benefit the UK as firms could expand their trade with non-EU countries. However, after four decades of integration with EU supply chains, economists argue it would take time to adjust, and the end benefits would likely fail to match up to those provided by the current system.

However, it’s not just asset stockpiling that is taking place across the nation. New data has shown that stockpiling has spread to cash, with UK companies building up reserves ahead of Brexit, according to new figures from UK Finance.

In the year 2018, deposits held by UK non-financial companies grew by 3.5%, with wholesale, retail, transport, electricity, gas and water sectors all recording higher annual growth. The data also showed that lending to manufacturing grew by 8.4% in the year to December, compared with a 0.3% drop amongst UK business overall. The stockpiling is being attributed to the rising threat of shortages and disruption posed by Brexit.

Brexit Uncertainty for SMEs

A survey conducted by Independent Growth Finance has shown that nine out of ten UK SMEs have concerns over the potential effects of Britain’s departure from the EU. In its study of 500 SMEs, they found architecture, IT and manufacturing companies to be the most concerned about Brexit, and that more than a quarter of all those surveyed cited Brexit as their biggest concern.

And it’s no wonder. The demand for funding for the SME market could be expected to increase in the face of Brexit chaos. Concerns are rife that the running costs of businesses will rise. With so many sectors relying on EU imports, the potential for material costs to go up is exponential. Firms that employ migrant workers may find their wage bill increasing as this resource becomes more scarce, and businesses that have chosen to stockpile goods may face increased warehousing costs to store these assets. All of these factors can impact cash flow and the ability to keep a business afloat.

Banking giant Barclays recently announced they will be holding more than 100 clinics across the UK from March to offer support for SMEs to cope with the Brexit uncertainty. According to their chief executive, Jes Staley, Barclays intends to play their part in supporting the UK economy by providing help to the one million UK SMEs that they serve up and down the country. While they claim that there is continued strong lending activity, indicating that things are not slowing down as Brexit approaches, they intend to help them navigate the challenges and opportunities that the following month will bring.

Can SMEs Mitigate the Impact of Brexit?

There is little doubt that Brexit is bringing about uncertainty and headache for the likes of SMEs who may struggle in the face of no deal. However, with the predicted rise in borrowing demand from SMEs, it is vital that these businesses fully acquaint themselves with the terms and conditions of their loans before they sign the contract.

Borrowing funds can always pose risks, but there are steps that can be taken to mitigate the risk. As a business, you must be armed with all of the knowledge and facts pertaining to any potential risks and ensure you are clear on the terms of your loan, as well as clarity on all potential eventualities. Your broker should work with you to ensure that all aspects of any loans with lenders are clear to you, and that you have an in-depth understanding of your loan.

At Ping Finance, we understand the importance of protecting your working capital and establishing a reliable, consistent cash flow. Whilst the upcoming March deadline might be throwing every sector into the realm of uncertainty and unease, we want to support growing businesses and ensure that any lenders we put you in contact with will always keep you in the loop and be completely transparent with you about any aspect of their loan.

Our huge range of specialist lenders have extensive experience working with businesses just like you to help provide a healthy cash injection when you need it the most. If you’re looking for a commercial finance broker in Manchester or a commercial finance broker in Bolton, contact Ping Finance today to secure funding for your next business venture.

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