UK small business confidence is beginning to feel the effects of Brexit. New research suggests that the number of small and medium sized enterprise (SME) owners expecting the economy to improve over the next 12 months plummeted by 30 percentage points as a result of Brexit.
The Smith & Williamson Enterprise Index, which measures the views and confidence of owner-managers and entrepreneurs in the UK, decreased dramatically over the past three months, falling from 111.4 to 97.7, putting it below its starting level of 100 in 2013. About a quarter of respondents submitted their surveys after the Referendum, accentuating an already negative result.
The research also revealed that optimism among SMEs of their own prospects over the next year fell by 27%, quarter on quarter, with one in two businesses pessimistic about their prospects.
“Confidence was badly affected by uncertainty in the lead up to the referendum vote but responses submitted after the event indicate that belief in the economy and business prospects fell off a cliff,” said Guy Rigby, head of entrepreneurial services at Smith & Williamson.
Mr Rigby added: “Only a third of respondents were optimistic about their own prospects after the referendum; a decline of nearly 20 points since the last quarter. Furthermore, only 15% of business owners and entrepreneurs expected the economy to improve in the post-referendum landscape, a further decrease of 13%.
SMEs remain hopeful of growth
However, despite the headwinds affecting the economy, almost half of SMEs have been looking for finance in the past 12 months. The figure suggests that – prior to Brexit at least – smaller businesses in the UK do see opportunities for growth.
The survey, jointly commissioned by the British Chambers of Commerce and Bibby Financial Services, showed that 47% of SMEs were seeking finance over the last year. However, the research showed the awareness of alternative types of finance remains stubbornly low.
The gap in understanding of alternative and equity finance products – such as peer-to-peer funding and trade finance – compared with familiarity with traditional loans and overdrafts was marked. Firms were most familiar with bank overdraft facilities (92.8%) and least familiar with mezzanine finance (18.8%). The four types of lending firms were least familiar with were mezzanine finance (18.8%), angel finance (38.9%), peer-to-peer funding (41.6%) and trade finance (46.1%).
Interestingly, of the firms that were successful in securing finance but rejected the terms offered, 54% did so because the interest rate offered was too high, and 39% said the collateral required was too high
‘Important to support business confidence’
“At some point in the life cycle of a business, access to finance becomes critical to supporting expansion and export plans,” said Dr Adam Marshall, Acting Director General of the British Chambers of Commerce. “The low appetite for finance revealed in this survey, which was undertaken before the EU referendum, is concerning because it implies that many firms were treading water and putting off expansion plans well before the high-profile campaign we’ve seen in recent months.
“These results demonstrate the importance of supporting business confidence, so that businesses feel comfortable making growth plans and seeking finance to deliver them.
“At a time of transition for the economy, government help can play an important role. So there is work to be done to raise awareness among businesses of schemes such as the British Business Bank, which was set up by the government specifically to make finance available to firms via banks and alternative lenders to promote business growth. The clear message needs to be that growth funding is available.”
David Postings, Global Chief Executive of Bibby Financial Services, said that it was clear that on the lead up to the EU referendum many UK businesses were not spreading their gazes in relation to securing finance. “Traditional sources of funding still seem to be the first port of call for many SMEs, but there are a growing range of options available and it’s important that businesses consider forms of finance that fit their own requirements.
“At a time of change for the UK, there’s a fantastic opportunity for SMEs to achieve growth by looking beyond traditional channels for specialist finance. Sources of funding such as invoice finance grow in line with a business’s sales ledger and this means that SMEs don’t have to take-on debt. Furthermore, a weaker pound provides opportunities for businesses selling overseas so export and trade finance may be better suited than loans or overdrafts.