SME survey of Lenders on Brexit

30 Jun 2016

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What impact will Brexit have on the behaviour of UK SME lenders?

In the wake of a referendum that shocked financial markets, the CreditSquare team has been hitting the phones and crunching the numbers to determine what this will mean for the availability of loans to UK SMEs. The official feedback from lenders is relatively uniform and can be summarised as ‘business as usual’, but the unofficial message shows a higher degree of variation.

Banks

As has been the case throughout previous periods of turmoil, including the financial crisis, none of the banks (challenger or high street) are likely to change their external communication when it comes to SME lending. For a bank to be seen as either ‘fragile’, ‘not supporting UK business’, or even to scare away potential customers would simply be poor strategy.

Nevertheless, the statistics don’t lie, and as we’ve seen in the past, loan volumes tend to decrease in challenging economic times, and while part of this is explained by SME finances coming under pressure, there is likely to be a significant element of ‘sitting on hands’ for a while at bank credit committees.

This clearly doesn’t mean that credit stops being extended, certain institutions view this as an opportunity to gain market share as others pull back, and others simply refocus to put more emphasis on what they consider to be ‘core’ sectors or products. For businesses seeking a loan it becomes important to remain open to switching provider, and running a proper process to ensure the best outcome in a credit application.

As such, the CreditSquare team is keeping its ears to the ground and staying aware about who is doing what in order to deliver maximum value to our customers.

 

Alternative lenders

At CreditSquare, we have spent the past three years building good relationships with the full range of non-bank SME lenders, including specialised credit funds, private niche loan providers, direct lending funds and institutional lenders like pension funds and insurance companies.

In our conversations with this segment post Brexit, certain of these providers backed by foreign capital are becoming more selective as the UK strategy comes under internal scrutiny, but those are exceptions to the rule. Overall, market turmoil and bank retrenchment is seen as an opportunity to fund businesses not properly served by the banking sector. This sector was born in the aftermath of the financial crisis, when the availability of bank loans dried up, and will be comfortable with taking a long term view and riding out the volatility in the economy.

Conclusions

If you are a small business looking for finance, or providing advice to one, the importance of continuous close interaction with lenders has become paramount. Approaching the ‘wrong’ lender may lead to a protracted process where you are ‘kept warm’ by a relationship manager who never had a real chance of getting your application past credit.

To ensure the best outcome, businesses should consider allocating the appropriate resources to a loan application process, or to appoint a specialist adviser.
CreditSquare specialise in SME loan transactions above £1 mm, providing advisory, financial modelling, and access to the full range of UK SME lenders including proprietary sources of capital.

We have an experienced team of advisers who are happy to discuss and do an initial review of any situation without any commitments.