Brexit, Business and banking

The Banking Payments Federation Ireland (BPFI) has compiled the following Brexit finance checklist for SMEs outlining key advice on financial and banking preparedness ahead of the UK’s expected exit from the EU at the end of January.

The checklist provides information on a range of areas including custom guarantees, currency information and credit supply.

Imports/Exports – Custom Guarantees are vitally important

Brexit means that the UK will become a 3rd Country for customs purposes meaning that for SMEs that are moving goods to, from or through the UK need to register with Revenue for an Economic Operators Registration and Identification (EORI) number. Revenue has excellent information available on its website and obtaining an EORI number can be done through the Revenue website using the Revenue Online Service (ROS). The recent survey from the Department of Business, Enterprise and Innovation (DBEI) shows that 49% of SMEs identify that they could be impacted by the need for customs declaration, yet only 10% have taken action on it.

Businesses can avail of the Customs Transit Procedure, www.revenue.ie/en/customs-traders-and-agents/transit/index.aspx, for moving goods through the UK landbridge to another EU Member State which removes the requirement to complete customs declarations and pay duties. In order to use this transit procedure, a business needs to have a Revenue authorised Comprehensive Guarantee in place, covering transit through the UK. Revenue will require a Financial Guarantee to be provided by a bank to cover actual and potential duties and taxes.

Importing goods from the UK will attract import taxes which are payable before the release of goods. From a cashflow perspective this may not be attractive to SMEs but there is the option to apply to Revenue for a deferred payment facility which many SMEs find is commercially more attractive. Again, Revenue will require a Financial Guarantee to be provided by a Bank. Arranging a Comprehensive Guarantee or a Deferred Payment facility can take a bit of time so it is important to engage early with Revenue to discuss putting these facilities in place and then with the bank to discuss the Financial Guarantee that the bank will need to provide to Revenue on behalf of the SME.

Sterling/Euro volatility – Foreign Exchange Spot/Forward Limits

The DBEI survey shows that 14% of SMEs say that hedging currency/investment issues could impact them, yet only 3% have taken action at this point. So too, for liquidity/currency issues where 26% believe they could be impacted but only 4% have taken action.

Sterling v. Euro volatility is likely to continue to be a key feature and it is very important for SMEs to review potential foreign currency exposures and the ways in which they can reduce the impact using various hedging strategies. Where SMEs need to put in place new or increased foreign currency facilities, they should engage with their bank who will be happy to advise them on the options available to reduce foreign currency exposures.

Cashflow/Liquidity Management

Brexit may result in additional supply chain costs, thereby affecting cashflow; so it is important to review potential changes to working capital needs. It may be worth considering having a buffer in place in the short term in case of unforeseen impacts on cashflow. There is a wide range of working capital options available (e.g. overdrafts/invoice financing) and finance providers will be happy to advise SMEs on the options available.

In addition, there is funding available under The Strategic Banking Corporation of Ireland Brexit Loan Scheme, www.sbci.gov.ie, to fund future working capital requirements or to fund innovation or changes to the business to mitigate the impact of Brexit. Loan amounts of between €25,000 to €1.5m are available for terms of one to three years, subject to eligibility criteria and normal bank credit assessment. SMEs must first complete the SBCI Eligibility Application Form to check if they are eligible to apply to the banks (AIB/BOI/Ulster) for a loan under the Scheme. If eligible, they will receive a letter of confirmation from the SBCI which they then present to the bank(s), as part of the credit application process. SMEs can apply at sbci.gov.ie/brexit-loan-scheme.

For Microenterprises employing less than 10 people and with turnover of less than ¤2 million p.a., loans of up to €25,000 are available from Microfinance Ireland. Application is through the Local Enterprise Offices (LEO network), or directly through microfinanceireland.ie.

Will there be an impact on financing SMEs as a result of Brexit?

Brexit uncertainty has been a feature for over three years now and during this time banks have been supplying credit to SMEs, although demand has been modest, largely attributable to the expectation that Brexit will have serious negative impacts for the Irish economy. Increased administration for businesses dealing with the UK, including the introduction of customs duties, concerns about supply chains, and higher prices for some products are just some of the expected consequences for SMEs.

While Brexit will pose challenges for many SMEs, there will be many other factors impacting on SME welfare other than Brexit including challenging conditions in the global economy, sluggish growth in the major European economies and trade tensions with China and USA, all of which need to be considered.

The Brexit impact is likely to be more critical for those SMEs where a substantial element of profits is generated from cross-channel business. Such business models will face significant challenges unless they act quickly to mitigate the potential negative impacts on profitability in a post Brexit environment. Without such mitigation, they risk becoming less attractive from a financing perspective.

Brexit will also offer opportunities to EU SMEs to grow their businesses, substituting UK imports with EU products and banks will be open to supporting such viable business propositions.