Unprecedented levels of political uncertainty have tested the endurance of the UK’s SMEs to the limit. As they gird their loins for the trading reality post-Brexit, finding finance fast enough to grow, and in some cases survive, remains a major challenge. Eleanor Wragg reports.


Once referred to by Napoleon as ‘a nation of shopkeepers’, the UK has one of the highest SME densities in the world, at over 70 per 1,000 people. While not quite at the level of their German counterparts in exports – only 9.8% of all UK SMEs engage in international trade, versus almost one-fifth in Germany – Britain’s small businesses are a central part of Prime Minister Theresa May’s pledge to increase exports to £1tn by 2020, turning the country into a “great, global trading nation”.

But behind the bombast, the cracks are starting to show. A perfect storm of currency volatility, difficult access to finance and Brexit-induced uncertainty is knocking the wind out of SME exporters’ sails. A recent KPMG study analysing social media posts by over 32,000 firms found that net business sentiment amongst SMEs has dropped by 12 percentage points since January, with Brexit the major culprit. Explaining the findings, James Stewart, head of Brexit at KPMG UK, says: “The UK’s small and medium-sized businesses are normally pretty upbeat or neutral about Brexit but this began to change in November and the picture has been deteriorating ever since, with the period January to February marking a particular decline. SMEs don’t want to be distracted from building up their businesses. Unlike the big firms, SMEs have neither the cash reserves to start stockpiling nor a great deal of flexibility in their financing arrangements.”


Show us the money

To keep things moving, UK Finance, the trade association for the UK’s banking and financial services sector, has called upon SMEs to consider the impact of potential changes to trade arrangements and speak to their banks about extra finance “as soon as possible”.

For some, this is a straightforward task. “We have enjoyed and leveraged a variety of finance products and funding to help support our growth over the years in one form or another,” explains Christian McBride, CEO of Genuine Solutions Group, which specialises in mobile phone accessory distribution and environmental recovery, recycling and reuse. He says that his firm’s current banking partners – HSBC and Santander – are “very happy” to continue supporting its growth. “For us, it’s traditional invoice financing packages, and they are fairly confident not just in our operation but in the wider remit of growth as well.”

However, he stresses that not all small businesses have the same good fortune. “We’re not really experiencing the same challenges and uncertainty that some of other businesses potentially are. Because of the clients that we are dealing with in Europe and across the world, the banks have a good insight into our business and they feel fairly confident in the funding they are providing to us.”

Although the UK government has ramped up support for SME trade in recent months through initiatives including the bond support and export working capital schemes, many SMEs are still struggling to access finance. This is reflected in figures from UK Finance, which show that the amount of loans and credit outstanding to small businesses has fallen by nearly £6bn in the past five years.

“Our recent research has shown that nearly 30% of UK SMEs require funding simply to stay afloat, yet a large majority find accessing this finance a major challenge. One reason being is there is a reluctance among UK banks to invest in risk and innovation,” says Rob Straathof, CEO of Liberis, an alternative finance provider.

Grainne Kelly, CEO of BubbleBum UK, a Derry-based manufacturer of inflatable car seats for children, tells GTR that a lack of willingness on the part of banks to lend is limiting her company’s growth. “We don’t have bank financing because they just won’t give it to us. We are a product manufacturer, and it’s very difficult to be cash-rich when you are reinvesting everything. The bank tells us that if we had a million in the bank, they would lend us a million. But if I had a million in the bank, I wouldn’t need one. Therefore, we have to do everything from our sales. It’s really frustrating, because we know what we can achieve, and we know that we are constrained by everything but the market.”

Kelly also points to the issues involved in obtaining finance as an SME. “Time is a significant cost for small businesses. The banks send you away, they ask you to get all of your financials prepared, and then they look for more reports before they can even consider anything. They leave you hanging on, and for other businesses who aren’t in the position that we are in, that could close them.”

Fintech companies have started to fill the gap, with peer-to-peer invoice financing platforms in particular seeing growing uptake. This has not gone unnoticed by banks: one such platform, MarketInvoice, which lets SMEs sell their unpaid invoices through an online platform to gain access to working capital, recently won backing from Santander and Barclays.

But not all SMEs are benefitting equally from improved last-mile access to finance. A recent study by risk management firm Equiniti Riskfactor found that total advances of asset-based lending and invoice finance for businesses with turnover of less than £1mn a year have reached their lowest point in three years, down 9% as of the end of Q3 2018 versus the same point in 2015. In contrast, businesses turning over more than £50mn saw total advances rise by more than £2bn over the same period.

“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,” says Aaron Hughes, Equiniti Riskfactor’s managing director. “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.”


Crossing borders

Like many Northern Irish SMEs, BubbleBum faces a logistical nightmare in the event of a hard Irish border. Uncertainty around whether or not this will come to pass is creating yet another hurdle to a positive lending decision from banks, says Kelly. “We are a border city. From an export perspective, it’s very helpful for us. We can ship from Northern Ireland at the same rate that you can ship from mainland UK, and we can ship from the Republic of Ireland and save on our rates of shipping to Europe and the rest of the world. If there were to be a hard border again, all of that cross-border trading will stop because it will become impossible.”

Worryingly, the return of customs checks, with their attendant long delays, is now a possibility not just on the island of Ireland, but on all goods exported from the UK to the EU, and further afield.

One of the options highlighted by the UK government to help reduce the risk of hold-ups is the authorised economic operator (AEO) certification, an “internationally recognised quality mark indicating that your role in the international supply chain is secure, and that your customs controls and procedures are efficient and compliant”. SMEs have been keen to take this up, with a 26% rise in registrations up to January 2019 compared to February 2017 – the highest percentage increase in registrations across Europe. “UK businesses are now realising that they will need to prove their competency in customs procedures when Brexit comes around – whatever form it may take. This surge in applications is encouraging, but there’s much more to be done before we catch up with our European counterparts, who will soon be our competitors,” says Lesley Batchelor, director general of the Institute of Export and International Trade.


Forging ahead

In the face of increased barriers to trade, the UK’s SMEs have little choice but to keep going, although this comes at a cost. To cope with Brexit-related uncertainty, four in 10 SME leaders are slashing the amount of annual leave they’re taking, according to a survey commissioned by Western Union Business Solutions, in many cases taking less than one week off in the whole of 2018.

Genuine Solutions’ McBride says that greater implication is needed from the government in order to lighten the load. “We are constantly developing our share of market in different countries,” he tells GTR. “The UK’s department for international trade has been very supportive throughout the years, but the government itself could definitely do better by putting more boots on the ground and thinking about how to get the message out about the UK’s products and services.”

However, he, like many other SME leaders, takes a sanguine view of the current tough trading situation, and remains optimistic about the future. “One thing that we as a British nation have is tenacity. What will be will be, and we will spot opportunities and move on with things.”