As Brexit approaches, Irish SMEs remain most exposed


By Mark O'Rourke, Managing Director, Ireland

12 Nov 2019

The uncertainty surrounding the eventual form Brexit takes and the nature of any future relationship between the UK and EU has vexed Irish businesses for some time now. Despite FDI’s high-profile contribution to the Irish economy, the bedrock of business activity on this island has long been Ireland’s SMEs.

Currently, our country is home to over 250,000 businesses – with 92% having ten employees or fewer – and they will find themselves particularly exposed as Brexit approaches. The recently published Global Business Monitor surveyed SMEs from 13 different countries, and found that Irish SMEs are struggling with rising costs and cash flow difficulties more than their international competitors.

In addition, the fluctuation of Sterling continues to cause problems for Irish SMEs involved in exporting or importing – driving up the prices of their goods and services and inhibiting their ability to trade in one of their largest markets. 

Recently, the Irish Government even took the step of issuing a loud warning to what they term “vulnerable but viable” businesses to secure emergency loan approval ahead of next month’s possible no-deal Brexit. But while the €110m earmarked for these businesses in Budget2020 is to be welcomed, there are approximately 84,000 Irish companies currently trading with Britain and these businesses need to ensure they are prepared to deal with any potential financial shocks. 

So, considering this increasingly challenging business environment, what steps should Irish SMEs take now to ensure that they are ready to deal with any challenges that could present themselves in the coming months?

Safeguarding cash flow

Secure cash flow is the lifeblood of any business, and SMEs should be working towards having working capital safety nets in place over the coming months in case any short-term liquidity needs arise.

While state schemes such as the Brexit Loan Scheme and Microfinance Ireland exist to fulfil this need, businesses are being urged to apply now as applications can take some weeks to process and the government has yet to outline how it will cope if it faces a surge in aid applications in the event of a hard Brexit. Doing so will be crucial, especially as 38% of SMEs report that they are currently struggling with cash flow according to our most recent Global Business Monitor.

SMEs also can’t rely on the mainstream funders coming to their rescue at the last minute. The Central Bank’s SME Market Report, released earlier this year, shows that 15% of SMEs face rejection when applying for funding from the major banks – and that figure is higher again for those 90% of business with 10 employees or fewer. And, given that the process of securing suitable cash flow via the main lenders can also be extremely slow and complicated, SMEs need to cast the net wider in order to secure the funding supports they require.

This is where alternative lending solutions can deliver real value and a range of benefits above and beyond access to finance, including in-depth specialist market knowledge and strong client relationships.

Invoice Finance, for example, allows businesses to raise cash against unpaid invoices, providing an immediate and ongoing supply of cash that grows with a business. Up to 90% of the value of an invoice can be paid within 24 hours – allowing business owners to pay staff, suppliers, or take on new orders. 

It’s also worth noting that discounted Invoice Finance services are currently available to qualifying businesses through the Strategic Banking Corporation of Ireland, the state-backed agency created to provide access to greater financing choices for SMEs through a network of finance partners, including Bibby Financial Services Ireland.

Coping with Currency Volatility

Ireland has approximately 3,000 wholesale and retail businesses exporting goods to the UK each year, and the vast majority of these employ fewer than 50 people. The most recent Global Business Monitor revealed that 82% of businesses find trading internationally challenging, and foreign exchange fluctuation is the most commonly cited obstacle. With tighter margins, these businesses are already more exposed to currency volatility. Fluctuation and volatility are facts of life no matter the currency, but the twists and turns of the UK’s Brexit negotiations with the EU have made it a particularly bumpy journey for businesses importing from or exporting to the UK. Again, there are a range of financial products that can help SMEs overcome these challenges. 

Trade Finance allows businesses to buy, receive and sell goods before needing to pay for them. Aside from quick access to funding, trade finance has the benefit of paying suppliers on the same day that goods are shipped, and in the currency of choice, helping to cement those all-important business relationships. 

Foreign Exchange services can similarly offer excellent value for money and flexibility, allowing SMEs to take advantage of spot conversions for immediate use or forward contracts to provide certainty for future currency requirements. 

Investing in international markets

The Brexit saga is far from over – with real talks over any future trading relationship between the UK and the EU27 still yet to begin. Depending on their sector, Irish SMEs would do well to evaluate their reliance on the UK market, and the possible advantages of growing their presence in other European markets. Doing so can provide a much-needed hedge and diversify a business’s sources of income. 

However, trading further afield brings with it its own set of challenges – including the need to identify and build relationships with new customers and suppliers. For those businesses that have customers overseas who have extended payment terms, or who have issues collecting payment from abroad, Export Finance can be a valuable resource. This releases working capital that might otherwise be tied up in invoices for long periods of time, and can help SMEs more easily gain a foothold or build a presence overseas. 

So, while Brexit – and particularly a hard Brexit – will undoubtedly have serious consequences for Irish SMEs, there’s much that can be done now to ensure businesses have firm financial foundations on which to face the coming disruption. Those businesses that broaden their horizons and understand the range of funding options available will be best placed to get through whatever is coming down the track.

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