Interest rates, investments, jobs and tourism are all under the spotlight following the triggering of article 50, which will result in the UK leaving the European Union. Historically, the UK has always attracted foreign investment due to the strength of the market and potential returns created by a growing economy. However, the natural progression of Brexit and the ongoing volatility that it will bring to the market could be cause for concern for investors looking at the UK as a viable market option. Questions will be asked about the potential of returns, particularly in the short term, as well the number of potential tax and red tape issues caused by Britain’s divorce from the EU.
While this market insecurity is already creeping into food prices and whispers of operations moving from the UK to European countries to keep tax efficient and single market access. It is also likely to impact funds for businesses through interest rate changes and available investment opportunities.
Long term, this creates a potential vacuum of investment space which could lead to a funding gap or an increase in alternative lending options.
Where will funding gaps appear?
Sir Richard Branson highlighted in October 2016 that Chinese investors were already pulling funds from the UK and that ‘thousands of jobs could be lost’. This came on the back a 40% slump in share value for Virgin Money in the months following the referendum.
On the other side of the fence, Chancellor Phillip Hammond admitted in his autumn statement the potential of borrowing £122bn to cover the cost of Brexit and the fallout of the UK leaving the European Union – a figure highlighted in advance to very strong suggestions of a ‘Hard’ Brexit whereby the UK would leave the Single Market.
Essentially this results in businesses, entrepreneurs and would-be start-up operations being pulled from both sides.
Firstly, independent investors may see a dip in the potential of the UK market so use funds to invest elsewhere in growing markets.
Secondly, with banks and the government increasing borrowing and reducing risk, the opportunity for standard business loans could reduce – or come with a much higher risk to the business itself.
“Our task now is to prepare our economy to be resilient as we exit the EU and match-fit for the transition that will follow,” said Hammond upon his announcement of borrowing, a sentiment that resonates with SMEs already being impacted by the June Leave vote.
Business Cash Advances and Alternatives to Business Loans
The result of an unpredictable market, whether it is on the back of reduced investment or footfall plateauing as customers feel the push of Brexit on their own pocket, is SMEs being in a position (and need) to take control of their own finances for long-term security and success.
Merchant cash advances are one option here and are suitable for businesses taking credit or debit card payments. Up to £200,000 can be raised in capital and with one simple all-inclusive fee there is no interest or fixed-terms on the advance. Furthermore, borrowers pay back based on a percentage of credit and debit card sales, meaning out-of-season where income might take a dip, payments also reduce as well. In this way, this alternative form of business funding is in direct contrast to traditional bank loans.
Other options include Crowdfunding, which will need a marketing campaign and wide-interest in a business are also needed. Unique selling points and what makes your business different from others in the sector will also be important.
Working capital loans are also of interest to some and can be based on real people investing in the business. Generally, up to £100,000 can be borrowed but interest rates can be as high as 30% dependant on the value of the business and the risk involved.
At the core of the business should be planning for success throughout and post-Brexit and getting the most out of a business as markets change.