In Focus Risk


Credit, when credit is due


Brexit should not dampen businesses’ appetite for expansion, but it may affect their funding options


Emma Clark Head of business development, Falcon Group emma.clark @falcontradecorp.com


With Article 50 now triggered – and the formal Brexit process underway – macro- economic uncertainty continues to impact British businesses. Indeed, the prospective loss of


‘passporting’, and the disruption this is likely to have on the provision of financial services, has many businesses worrying over sources of credit drying up. Of course, bank funding constraints were


an issue even before Brexit, with the alternative-finance industry taking up a significant proportion of the slack. Last year, the industry provided more than £3.2bn of funding to British businesses, and, as the UK sets out to divorce the EU, non-bank financial institutions will become increasingly important.


Brexit pains One of the most prominent victims of Brexit has been the UK’s currency. Yet the Pound’s plummet – it has fallen 15% since the vote last summer – is proving a double-edged sword for many firms. On the one side, exports have become


comparatively cheaper and witnessed a boost; on the other, costs of imports have risen. As one example, purchasing costs for manufacturers over the past three months have hit an annual rate high of 18.8% – the highest level since 2008. The steep rise is placing pressure on many


sectors, including the construction and car industries, as well as on supply chains and company cashflows. In such times, the supply of timely credit can be the lifeblood of many businesses.


Cuts to the supply-line Yet businesses face the double-whammy of decreasing bank credit lines at the same


42 www.CCRMagazine.co.uk


The steep rise is placing pressure on many sectors, including the construction and car industries, as well as on supply chains and business cashflows. In such times, the supply of timely credit can be the lifeblood of many businesses


time as cashflow squeezes. Brexit – and, in particular, the potential loss of passporting rights – has many banks delaying investment decisions, as well as considering relocation. Worryingly, parallels can be drawn


between Brexit and the credit crunch of eight years ago. During the financial crisis, fluctuations in credit supply, and the subsequent pressure on interest rates, led to more stringent bank lending criteria, as well


as to an overall tightening of credit lines. All of which, of course, disrupted the supply of finance, and also related services, to the real economy. While the impact of Brexit on the


availability of bank funding remains unclear, anecdotal evidence suggests this may already be occurring – spelling bad news for those firms heavily dependent on traditional funding.


Arise the alternative Of course, access to credit during this period of uncertainty is critical – business must go on regardless of the geopolitical landscape. Opting to diversify funding sources


outside of normal banking lines would give businesses a strong alternative – especially should conditions become less favourable after Brexit. But security of funding is not the only


potential benefit. Unlike banks, non-bank lenders are nimble and, as such, able to operate where banks cannot by adapting their offerings to the shifting needs of businesses. In such times, this flexibility gives them a distinctive advantage. Yet, what ultimately sets the non-bank


finance industry apart is ambition. Specialist financiers want to do business with British companies and they possess the resources and expertise to do so. The industry grew by 80% last year and this is only set to continue – particularly if bank lending continues to pull back. How the dust will settle on the Brexit


negotiations is becoming increasingly difficult to gauge. However, at a time when the economy is in a state of flux, what is certain is that non-bank financiers are ready to take on the challenge. CCR


June 2017


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