Waking up early on June 24th, I was surprised to learn the outcome of the UK referendum on EU membership: the majority of voters had opted for Brexit. Similar to the General Election just over a year before, this had caught the pollsters and bookmakers by surprise. The markets too were spooked, with the value of sterling falling sharply, and the main UK stock indices chalking up significant losses. In addition to the economic turmoil, the political fallout was immediate, with the prime minister stepping down, and the opposition party in disarray.
As CEO of a small business, my mind immediately turned to what impact this news might have on our customers and employees. Growth Street is a non-bank lender in the UK offering overdrafts to small and medium sized businesses, and our customers rely on us to provide same day access to working capital when they need it. Many of our staff were born abroad, and are only able to live and work in the UK as EU citizens.
Before I left for work that morning, I sent a note to the team. I reassured them that nothing in the short term would change: that it would take months, if not years before the full impact of the vote would be known, and that ultimately I expected this result to serve as a catalyst for innovation across industries, benefiting small businesses over large corporates. I argued that this result could prove a huge win for Growth Street and our SME customers.
This business-as-usual attitude appeared to be echoed throughout the day by various organisations, included the Bank of England and the Financial Conduct Authority. The “keep calm and carry on” images began to filter through my social media feeds, interspersed by despondent messages from remain voters.
Three weeks on, I stand by that note to the team. The stock markets have recovered most of their losses. The laws and regulations that impact the UK are still the same. EU citizens continue to enjoy the right to work and live in the UK. The UK is yet to invoke Article 50, starting the clock on a minimum two-year period of negotiations before we would even formally leave.
I continue to remain positive about Brexit and the opportunities it creates for small businesses for several reasons:
- Fiscal policy – the chancellor has already signalled he will bring forward plans to reduce corporation tax. This will help attract foreign direct investment into the UK, and additional retained earnings should fuel further investment and growth.
- Trade terms – while ambiguity surrounds the future terms of trade with the EU, the business secretary is pushing forward with hiring trade negotiators and has started the process to strike bilateral trade deals with key international parties. This is expected to open up new markets for firms, with deals focused on serving British interests.
- Relaxation of state aid rules – government subsidies and other forms of economic support have been severely restricted under EU membership. Post Brexit, industries deemed critical to the national interest may benefit from unfettered state support.
- Rebalancing of our economy – Brexit could prove an important catalyst that creates a more diverse UK economy. The UK is a net exporter of services, but a net importer of goods. If the recent depreciation in the value of sterling holds, we should expect this trade differential to become more evenly balanced, creating greater economic stability in the future.
- Corporate inertia – larger firms, particularly those that work across multiple industries and jurisdictions, may have to significantly restructure their operations, in the wake of changes to the regulatory and legislative environment following Brexit. The impact on smaller, more specialist firms will be more focused, allowing firms to respond more quickly than their larger competitors.
In order to seize the opportunities that Brexit creates, small businesses should look to the alternative finance sector. Not just as a source of capital to support growth, but as an inspirational example of how market turmoil can serve as a positive catalyst for change. Prior to the global financial crisis, the majority of UK business lending was provided by a handful of large banks. In the aftermath, bank lending to SMEs was radically reduced. Entrepreneurs, government, regulators and investors acted together to create a favourable environment for new, innovative players to fill the gap.
Seven years on, small businesses are now able to access a range of different finance products from a wide variety of providers. Alternative finance business lending is 12 per cent of the market for lending to small businesses in the UK. Increased competition is resulting in lower prices and better service. While there is still more to be done, the landscape for commercial finance has changed for the better.
I would therefore encourage business owners to embrace the opportunities that Brexit presents, use it as an opportunity to innovate and improve competitiveness. Or as one venture capitalist put it – if Brexit has given you lemons, stay calm and make lemonade.
- The post gives the views of its author, not the position of LSE Business Review or the London School of Economics.
- Featured image credit: Coffee shop, by Unsplash, Pixabay, Public Domain
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James Sherwin Smith is CEO of Growth Street. He started his career in financial services at management consultancy Oliver Wyman. During his 8 year tenure, James was responsible for the development of an SME direct lending business for a leading global investment bank in the UK, and the development of an online deposit business for a European retail bank, also in the UK. James also managed several projects for major European retail and business banks addressing credit risks and regulatory issues. James is passionate about the positive, disruptive impact technology can have on our world. His past employers include MasterCard and his Start-up experience includes time at Hitmatic, ActiveMedia Technology and d4. James is an active angel investor and advises other small businesses in his spare time, including Fidel, a mobile loyalty app, and Ethos Foods, a meat-free restaurant.