The implications of Brexit on the City of London’s multi-billion companies have received a lot of attention. It is understandable given the impact on jobs and the economy should these companies relocate after March 2019.
Yet small and medium sized enterprises account for 99.9% of businesses in the UK. They employ 60% of workers outside the public sector and contribute £1.9 trillion to the annual economy – 51% of private sector turnover.
SMEs already find it difficult to access the finance they need to grow. They don’t often have the independently-audited accounts they need to prove themselves to investors. The challenge is even greater for young and innovative companies. The value of new ideas is hard to measure, they’re costly to develop and may never take off.
During times of uncertainty like Brexit, things can become even more difficult. Diversifying investment portfolios or complicated financial restructuring to weather economic storms are options beyond the reach of most small businesses. It is no surprise they grow half as fast as bigger firms during such periods.
University of Southampton’s Dr Marta Degl’Innocenti, Dr Si Zhou and I recently analysed data from the 2016 British Business Bank survey to assess the impact of Brexit. In a sample of more than 1,535 SMEs, 50% believed it will be more difficult to access finance after the UK leaves the EU.
Despite having the most financial opportunities on their doorstep, 87% small businesses in London were concerned about access to credit. Meanwhile 89% of those in the north of England were worried. Given the strength of support for Brexit in the region, this could suggest a divergence between public and business opinion.
55% of companies under five years-old, 53% of innovative firms and 51 % of micro-businesses all expect to be significantly less successful in gaining access to credit.
71% SMEs were already acting on their perception of a tightening lending environment by reducing their growth and investment plans, pausing recruitment or letting employees go.
However, perhaps buoyed by a growth in orders as the value of sterling fell in the months following the EU referendum, 56 % of manufacturers and 55% of exporters both believed their financial constraints would lessen post-Brexit.
With less than a year to go until the UK leaves the European Union, it’s vitally important SMEs aren’t overlooked among the political machinations. Not only do they face a time of unprecedented uncertainty, they are all too often the silent casualties of changes underway in financial services.
Outside of London, the majority have already suffered from local banking services and poorly-imagined regional support initiatives.
Grand plans for new international trading partnerships won’t count for much unless the UK Government does more to support the backbone of the economy.
Dr Raffaella Calabrese is Chancellors Fellow in Data Science at University of Edinburgh Business School