Britain’s decision to leave European Union (EU) or to be called “Brexit” is a controversial issue currently because it will bring significant impact to many countries in the world. In fact, United Kingdom has been in the EU for a long duration since 1973 which is already 43 years until 2016. Most UK citizens have voted to leave EU and nothing can be done to change the result even though it may bring disadvantages more than the advantages. Fundamentally, this report focuses on the consequences of this decision on UK small and medium sized businesses (SME’s), whether it will bring opportunities or threats to the business. Small and medium sized business in the UK means that the business has employees less than 250 and owns less than £12.5m of gross assets. A survey from the UK200Group shows, after Brexit vote, there is no increase or decrease in the revenue of private businesses which includes SME’s. This illustrates that Brexit does not give bad impact in short term. On the other hand, according to SMBWorld Asia Editors, 30% out of 500 SMEs feel that banks do not support the business appropriately in terms of giving loans since before UK leaves EU. The condition is getting worse after Brexit which makes SMEs has to depend on other financial resources other than banks for additional funding. This shows that Brexit has bad effect on SMEs. Therefore, there are positive and negative effects of UK leaves EU on SMEs and other type of business.
First investigation is from a trade journal titled “ Small businesses say banks do not support them ” credited to SMBWorld Asia Editors. From the title, it is very clear that banks are reluctant to give borrowing to small business. “Over a quarter of small businesses (26%) do not feel supported by their banks, according to a survey of 500 SME’s conducted by YouGov” (SMBWorld Asia Editors, 2016). According to Chirag Shah, CEO of Nucleus Commercial Finance, bank is more likely not to give the small-to-medium sized business a loan contract due to there is no strong guarantee that SME’s business will repay back the loan rapidly. This is because these small businesses usually gain low profitability which also makes them not be the target customer to bank. When these businesses apply overdraft or any type of loans from bank, bank will not get high benefit. As all business includes bank only look out for high profits, they will only accept transactions that lead to it. When Brexit happens, this matter is getting more complicated. Banks definitely derived advantages from the UK’s EU membership. This is proven by the increase of trading and investments in the Bank of England after UK becomes a member in EU. Unfortunately, when Brexit takes place, there is high possibility that the openness of investment opportunities to foreign countries will be harder. Therefore, bank will choose to not give loans to SME’s business and they will focus more to large business to be their customers as the business will bring high return to them.
A report from a news article which is mainly about the real clarification of what will actually occur when UK leaves the EU. This analysis made by UK200Group which is an association that represents SME’s businesses and other small industries. This report is mainly a “Q&A” session between the SME business community and Vote Leave group. Firstly, the subsidies will be remained given to the agriculture industries as apparently the subsidies are provided by the UK government from the beginning and not from the EU. The uncertainty about SME’s growth was also questioned. When UK leaves EU, UK will have the freedom to consign an agreement about the free-trade with any countries includes India and China. Thus, SME’s will get wider opportunity for growth by exporting their products and services internationally. Apart from that, Working Time Directive regulation to supervise the working time of workers will be unavailable in UK after UK leaves EU. But it is not very unpleasant as studies shown that this law has had bad impact on the medical treatment of patients as the doctors cannot work overtime to monitor patients’ health. Furthermore, there will be UK Parliament to enact laws regarding the welfare of the workers. Next, with EU laws, free movement of people will be allowed and SME’s business will get labours that match to the skills needed. Even though EU laws will not be accessible in UK anymore, UK government is able to develop an immigration system that is more efficient.
On the contrary, an article from World Market Intelligence News has reported that SMEs has had struggles when exporting their products. A study shows that 69% of 1,139 British-based SMEs found that it is very complicated to export their goods internationally. This problem arises due to complex documentation and legal laws of another country. Nevertheless, some of the SMEs owners do not acknowledge about the rules and regulations of the country of imports. With these barriers, SMEs would not get the chance to have a rapid growth. In fact, UK export market has obtained revenue of £44.9 billion from February 2010 to June 2016 but mostly large businesses involved in this export. After the UK’s referendum to leave EU, the circumstances are getting more difficult not only to SMEs but also large businesses. During the membership of UK in the EU, there is a free-trade agreement between UK and EU which the process of exporting is not very difficult. Indeed, Europe is the largest export market for UK. With the action of UK leaves the EU, the exporting process to EU will be similar to when UK exports to China and India, as such. SME’s problems will be inflamed due to Brexit. In spite of this, Wraith-Carter, a managing director at Hitachi Capital Business Finance, had observed that countries outside Europe will be more interested to import UK products as UK leaves EU. These countries include China, India and Middle East are capable to emerge with SME’s and unblock the opportunity of growth for SME’s.
The European Commission has advocated a data protection rules named General Data Protection Regulation in January 2012. This regulation was proposed to protect the data privacy of all EU residents and it will be implemented in 2018. One of the advantages of this rules is the secrecy of company’s financial information is secured because it will not be exposed to public. From a magazine article, it is said that this rules will arise more problems to SME’s and the public. According to Peter Wallwork, Chief Executive of the Credit Services Association (CSA), this act will restrict SME’s from getting loans and make it harder for the business to chase the late payers. This is due to the business could not make their data accessible at any cost. When making agreement with lenders on getting credit from them, business data such as budget statement and business plan needed as a guarantee. If these documents are failed to be presented, business will not get the loan. Debt factoring company will aid business to reduce the bad debts as they are responsible to ensure that debtors settle the outstanding payment on time. With the implementation of EU data protection rules, the list of debtors cannot be given to the debt factoring company. These difficulties will worsen the financial problems of SME’s. However, when UK exits EU, this rules will not be executed in the UK. This will bring satisfaction for the SME’s as they should not be worried about the protection anymore.
In conclusion, all the impacts on SME’s are still in the short-term. This is for the reason that UK will leave EU totally by the end of March 2019. European Union laws and regulations are still not removed completely from UK which means EU laws still be implemented. From the evidences presented, those still not imply the real impact of Brexit on SME’s because all are only possibilities that could happen. When these uncertainties happen, SME’s should construct some plans as a preparation for the possible difficulties. SME’s can ask for financial incentive such as grants from government if the banks are truly reluctant to help them. Apart from that, due to the UK will have freedom to make a trade agreement with any countries, SME’s should be prepared with high quality products and services that are eligible to be exported. SME’s should create a new business plan with a new product invention and improve every aspect of the business so that they are able to achieve high profit. Whatever it may be, SME’s owners should not be excessively worried about the impact of Brexit on their business, yet they should focus on achieving their goals and try to shove away all problems from letting it affect the business growth.