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What does Brexit mean for UK SMEs?

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As we head towards the end of 2020, our Managing Director of SME Lending, John Phillipou, shares his thoughts on the potential impact of Brexit on UK businesses and SMEs.

We’re continuing to see a sense of uncertainty caused by Brexit amongst our SME customers, particularly with the end of the current transitional period looming on the 31 December 2020, when the UK will leave the legal aspect of the EU. Combined with the impact of coronavirus, it is a challenging time for the market.

Smaller SME businesses are less likely to be impacted as they tend to focus on the domestic market, however those larger SMEs with more exposure to Europe would like more clarity on what changes may emerge, particularly around aspects such as import and export tariffs and supply chains. Most businesses can adapt to whatever situation, but they require certainty in order to do so. The propensity to trade with the EU within a particular sector may also vary by region, leaving some firms more exposed than others simply depending on where they are based. Companies that are more exposed to international trade are typically sitting on investment decisions until that clarity emerges.

A ‘no deal’ Brexit will be particularly tough for the agricultural sector. Tariffs for farmers exporting produce to the EU could well increase enough to put them at a serious competitive disadvantage, as well as the likely red tape implemented around the whole supply chain. Many farmers have been equipping themselves now with essentials and machinery, from combine harvesters to biomass boilers, to gain some reassurance before any subsidies and EU funding ends.

There is uncertainty for road hauliers across the transport sector. Licenses needed by haulage firms to carry out long distance journeys to EU member countries could change, along with additional requirements needed by drivers. Delays to customs checks are also likely to be longer.

There are however some positives for the road haulage sector, which often has equipment that is bespoke to the UK, such as right hand drive vehicles and specific dimensions on trailers, meaning that equipment for these sectors has always had a finite market to serve.

Positives could also be seen for some smaller manufacturers for example, who may have become too focussed on the short term within the comfort of the EU. Leaving the EU could better position many for the long-term and encourage them to find better investments and trade deals than within Europe alone.

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Paragon Bank PLC is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered in England number 05390593. Registered office 51 Homer Road, Solihull, West Midlands B91 3QJ. Paragon Bank PLC is registered on the Financial Services Register under the firm reference number 604551