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Most start-ups need third-party investment to get off the ground. Sometimes, even established companies take out a loan to use as working capital. Whatever the reasoning behind them, business loans are an essential investment type for all manner of businesses, small and large, who wish to borrow. This has been the case for hundreds of years, and British banks and building societies have been happy to show faith.
Is Brexit a spanner in the works?
A spanner has been thrown into the works recently, however. Its name is Brexit, and it has lenders stifled. Some would say worried. There are several reasons for this. Many lenders are worried that Brexit could invalidate their long-term loan contracts with businesses in Europe. Some lenders are worried that a hard Brexit could go as far as to stop them from seeking new business in Europe.
These worries are tangible, and understandable, from both a lender’s point of view and the borrower’s. But do they translate into lenders tightening up their loan applications, and reducing their faith in small business?
The answer is no. Or at least, not yet.
It must be said that banks are reducing lending. It is now harder for people to get a mortgage, for example. However, businesses are still being funded right now, by major banks operating out of London and smaller banks alike. Independent lenders too are mopping up business tidily, committing several million through business finance and asset-backed lending. This is excellent news for small business.
Additional challenges of Brexit for business loans
SMEs do face another challenge with Brexit and lending, though. It is not just unique to them, but it affects them more than large enterprises. That challenge is currency volatility, or the unpredictable movement of exchange rates. If Britain has an unstable economy, then that could cause lenders to shift towards lending to larger businesses over SMEs, because big business is less affected by an instable economy overall. Unfortunately, this does mean inconsistencies with lending procedure month-to-month.
It’s fair to say that the result of the Brexit referendum took most lenders by surprise. Since the result was announced, lenders have attempted to determine what the result means for them. Thankfully, the following months showed that the leave result was not the catastrophe that some economists would have had us believe. Banks have not moved their headquarters from London. Small businesses are still thriving.
The bottom line with lending and Brexit…
Business loans are still viable with Brexit. Start-ups can expect funding as can larger enterprises. However, the need for a sound application is more important than ever before.
The viability of business loans with Brexit is simple – lenders are still lending during the Brexit negotiations. And they will continue lending after them. Specialist corporate finance companies will be the big winners, however, as traditional banks show uncertainty. Expect to see a lot more from finance specialists who offer start-up loans, business finance and equipment refinance solutions to British business.