Brexit uncertainty impacting on asset based lending for SMEs

Analysis from Equiniti, the FTSE-listed share services and fintech business, of UK Finance statistics shows that continued Brexit uncertainty is having the biggest impact on the smallest businesses in relation to asset based lending and invoice finance borrowing.

The figures show that total advances to businesses with a turnover of less than £1 million a year reached its lowest point in over three years, with just £1.1 billion borrowed from lenders at the end of Q3 2018. This has dropped 9% from the same point three years ago before the Brexit vote when advances totalled over £1.2 billion.

The ‘Brexit-bite’ has been particularly strong for these smaller businesses in 2018 with advances declining significantly in two consecutive quarters – as of September borrowing had declined by £97 million compared to the end of Q2 and by £221 million compared to the end of Q1.

In contrast, businesses turning over more than £50 million demonstrated their continued ability to take on asset based lending and invoice financing, potentially due to their bigger buffer against any potential Brexit downturn.

Compared to the same period three years ago, total advances had risen by more than £2 billion increasing from £8.1 billion to £10.4 billion as of the end of September 2015 and 2018 respectively.

While the rate of growth has certainly slowed since the Brexit vote, there was still a significant increase through Q3, with advances rising £946 million through the quarter as larger businesses showed that they can still take on additional borrowing.

Aaron Hughes, Managing Director at Equiniti Riskfactor, believes the figures are evidence that it is the smaller companies that are seeing the biggest impact of the current Brexit stand-still, said “Businesses remain in the dark over the end state of negotiations between London and Brussels. Until there is a clear Brexit path, smaller businesses do not appear keen to borrow more via invoice finance or other asset based lending channels to preserve their financial integrity.”

“This lending offers quick, reliable cash on flexible terms to minimise risks that are inherent in the cashflow systems of many smaller businesses. As such, it is a shame that the wider political and economic uncertainties are starting to limit opportunities for businesses at the smaller end of the annual turnover scale.”

“Hopefully, once the negotiations have been finalised, we will see a greater uptake in the amount of money that SMEs are accessing as the investment decisions many are delaying can finally be made.”