Small Business Enterprises Lending Trends in the Wake of Brexit in the UK

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As a result of the continued looming economic uncertainties of the Brexit referendum, it has become increasingly difficult for small businesses to garner the support they require in order to secure loans for their trade. In light of the current market atmosphere, several British charities and financing companies have been publishing reports on how small and medium businesses can prepare themselves for taking out a loan. This article will examine the data from government wings and juxtapose it with the information supplied by financial advice companies. This would provide a clearer picture to see what part of the information provided is relevant to the setbacks faced by small business owners and to the extent they are following up on the advice.

A recent comprehensive study carried out in 2016 found that during the last year, there has been the largest increase in the number of small business being registered in the past five years. The survey, undertaken by a large business financing company based in the UK, found that while there were fewer large businesses being registered compared to the previous year, the number of small businesses has seen the greatest increase since the recession eased off. There has been an addition of more than 97,000 small and medium businesses being registered with the authorities during 2016, an increase of nearly two percent on the previous year.

An analysis provided by the Citizen’s Advice Bureaux report published at the end of 2016, showed that this increase in small business growth has been primarily supported by the active availability of funding from a number of sources. The report published showed an increase in the number of calls received by the UK based charity on a year on year basis, with the largest increase seen in 2016. However, the report noted, most of the calls to the organisation were not because the small business owners had fallen into any financial trouble, but they sought advice on their financial management plans involving taking out loans.

The Procurement Department of the British Money Advice Service (MAS), confirmed their own findings with that of the Citizen’s Advice Bureaux. This department specialises in providing professional advice to individuals and small businesses in their plans to determine whether or not a procurement is feasible according to the customer’s unique situation. According to this organisation, the most common advice their Procurement Department had to deliver was to small business owners with regard to financing capital for their trade. About 68 percent of all such calls were related to understanding if it was better to secure funding from a bank or any other financial lender.

Analysis of Increase in Small Business Activity

A major online British financial consultation company has correlated the data from the government figures showing an increase in small business start- ups and the information supplied by public support organisations. They concluded that due to the ease of finding financing options for small businesses, it is more convenient for entrepreneurs to secure the funds for their trade.

This can be elaborated by the fact that a small business would not require a great deal of funding from lenders to either expand, or even start up their ventures. Therefore, lenders would not see a greater risk while determining their application for financing as compared to larger businesses. It can be reflected from the fact that although small businesses have seen a remarkable increase in numbers in the country during 2016, the momentum of large and even medium businesses have decreased. According to government figures, 84,000 out of the 97,000 new small and medium enterprises (SME) established during the last year, belonged to small businesses.
According to a Bank of England’s explanation about the criteria for approval of loans for small businesses, that lenders take into consideration the personal credit history of the applicant. This personal credit check of a small business owner makes up a part of the assessment that lenders undertake in order to gauge the feasibility of approving a loan for the company.

This overlap of financial checks has played to the advantage of small and medium business owners with an increasing number of banks and other lenders are becoming more and more reluctant to approve loans to large companies. This is primarily because a larger company would require a larger sum of money in order to realise their financial needs, therefore, posing a risk of a large default.

With Britain’s potential exit from the largest integrated economic cooperation in the world, there is an increased macro- economic risk for large businesses to made bold expansive decisions. This includes approval of loans to large companies that are willing to take a chance for either expanding or meeting expenses. Small enterprises have seized the opportunity and thrived in the business void left by their larger competitors.