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Will Brexit Affect Small Biz Lending?

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By Christopher Coble, Esq. on June 28, 2016 2:15 PM

Your small business isn't located in London. You don't have clients in Northern Ireland. Heck, you don't even know anyone in Scotland, and the closest you've come to Wales was seeing Shamu at Sea World. But if you're thinking that means last week's Brexit referendum won't have an impact on your operations, you may want to think again.

Many financial market observers are seeing an indirect impact on small business, not in sales but in small business lending. So will Britain leaving the EU leave your startup or small business without the funding it needs?

Don't Rock the Boat

This latest concern comes from how big banks and other lenders manage their risk. When financial markets are more volatile, notes Rohit Ahora at Fox Business, lenders tend to tighten their belts. "When financial institutions here get panicked, they typically become more risk averse, which is not beneficial to small business borrowers."

And Brexit definitely had an impact on the market, not just at home, but globally. The pound dropped to its lowest value since 1985 (even though the UK was in the EU, they did not switch to the Euro), and investors turned to the yen and the dollar instead. These ripples could be felt on the other side of the pond as international banks become less likely to lend money to startups and small businesses.

Brexit Strategy

If that happens, it would buck the trend in small biz lending over the last half-decade. As Ahora notes, lenders have been more generous lately: in May 2011, big banks were approving less than 10 percent of small business loans; by May 2014, the approval rate was almost 20 percent; and as of May 2016 banks were approving 23.2 percent of small business loan applications.

So will Brexit chill the lending market just as it's heating up? For the biggest international banks, perhaps. Credit unions might be more likely to approve small biz loans than big banks or even online lenders, so it may mean that small business owners have to think more locally when seeking financing.

If your small business needs advice on financing options, or any other legal matter, you can contact an experienced commercial attorney in your area.

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