The Political Factor Weighing On SMEs’ Minds (It’s Not Brexit)

Analysts quarreled over how the U.K. referendum would impact the markets, but immediately after the nation voted to leave the European Union, it was too soon to decipher who got it right and wrong.

A few months later, analysis is beginning to trickle out about Brexit’s actual effects on the economy — and that includes small businesses. Two of the latest reports to examine how small businesses move through Brexit’s impact seem to agree: For the most part, it’s business as usual.

Last week, BDRC Continental published its most recent quarterly report on small business finance trends. Its Q2 2016 SME Finance Monitor, the company said, can act as a “baseline” for small business sentiment, as field work and research for the study occurred soon after the results of the U.K. referendum were revealed.

In exploring how SMEs planned to access finance and invest in their businesses for the months ahead, researchers at BDRC Continental agreed that Brexit hadn’t thwarted their usual paths, with just 13 percent of the 4,500 SMEs surveyed citing the current economic climate as a major barrier to their businesses. Only 10 percent cited political uncertainty as a top barrier.

Analysts noted that those figures were unchanged from Q1 2016.

Surveys conducted by BDRC since 2011 have revealed a steady trend of small businesses turning away from external financing and instead towards self-funding measures; 71 percent of SMEs said they would prefer to self-fund rather than borrow, even if that meant a slower rate of growth for their companies.

That doesn’t mean Brexit goes unnoticed among small and medium-sized businesses, however. For SMEs on the larger end of the spectrum — those with between 50 and 259 employees — concerns about the economy are a bit higher. But the SME Finance Monitor’s release coincided with new data from Markit, which found that the U.K. is unlikely to enter a recession in Q3 as the result of the referendum vote.

“Brexit has the potential to change the business context,” stated BDRC Director Shiona Davies in an interview with Reuters. “For now, most SMEs are reporting ‘business as usual,’ albeit there are signs of concern amongst some specific groups.”

But what about SMEs in other geographic markets?

This week, alternative lending platform C2FO published its most recent Working Capital Outlook Survey, released annually. Researchers surveyed 1,800 SMEs across the U.K., as well as the U.S., Germany, France and Italy.

Similar to conclusions drawn by BDRC, C2FO said Brexit hasn’t knocked SMEs off their rails quite yet.

“The majority of small and medium-sized businesses are more concerned about competition from emerging markets and higher interest rates than the effects of Brexit and the upcoming U.S. presidential election,” C2FO stated in its announcement of the report on Tuesday (Sept. 13).

More than three-quarters of SMEs across EMEA predict Brexit won’t have any impact at all on their ability to access financing and invest in corporate growth, the report said.

What SMEs care about, though, is being able to have choice when it comes to seeking financing. Again, like BDRC researchers, C2FO found that small businesses are turning inward to finance growth.

“The increasing need for liquidity is pressing SMEs to pursue a variety of funding sources,” said C2FO SVP of EMEA Colin Sharp in a statement. “However, as the large majority of SMEs still finance themselves with cash flow from operations, there is a significant opportunity for businesses to optimize working capital through better relationships with customers and better use of accounts receivables.”

Brexit may not be top of mind for small business owners in Europe and the U.S., but political factors do affect the ways SMEs manage cash, C2FO noted. According to Chairman and CEO Sandy Kemper, interest rates are a top concern.

“The aberrationally low interest rate environment is polarizing the global liquidity imbalance,” Kemper stated. “Corporates are increasingly being charged to hold deposits, while the banks themselves are struggling with increased regulatory burden that impedes their ability to loan to the SMEs, which are such an integral part of the global economy.”