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Brexit to drive change in Irish financial markets

Diversification and growth of lending alternatives among SME finance trends

Euro-based SME customers should see Brexit as an opportunity for greater export thanks to the sterling devaluation, said Adrian Sainsbury of Close Brothers UK.

Euro-based SME customers should see Brexit as an opportunity for greater export thanks to the sterling devaluation, said Adrian Sainsbury of Close Brothers UK.

 

Just when things were beginning to get a little easier with the 2008 economic crisis almost in the distant past, a new geopolitical challenge threatens to rock the very foundations of the Irish financial sector. As our chief exporter, Britain’s now certain exit from the European Union can and will be the catalyst for a variety of trends in financial markets, small and large, in Ireland.

1: “Brexit will be big here,” says Donnchadh Cullinan, growth capital and banking relations manager with Enterprise Ireland. “Things will be tighter and SMEs will need to prepare themselves for more currency fluctuations. Understanding what this means for business, raising finance, equity and what the alternatives are to traditional lenders will be key to survival.”

2: The emergence of different sources of finance is a welcome trend that wasn’t strictly borne out of the 2008 fallout but has come to more prominence in the following years.

“The banks used to have to do everything but they have gone back to their core lending, leading to the growth of welcome alternatives,” says Cullinan. “So we will see a trend towards more diversified funding.”

Convertibill is one such alternative that will benefit from increased diversification. “We are already seeing a move away from traditional lenders to lenders like ourselves, says Damien Kenny of Convertibill. “Overall there is greater availability and sources of finance now in the market for businesses with new types of finance products, such as Order Finance from Convertibill.

“We will see far more efficient turnaround in finance applications, mainly from the non-traditional lenders who are in a position to provide finance quickly.”

Online applications

3: Kenny also sees the increased use of online application processes and technology to speed up processes for SME finance customers.

4: Increased competition is a catch-all term for what is driving current trends in SME finance. There has been a huge number of new entrants into the UK market, especially from peer-to-peer lenders,” says Adrian Sainsbury, banking division managing director of Close Brothers UK. “One of the new challenges for banks – great and small – is the number of new players in invoice finance. There are over 40 players in the UK market alone.”

However, there are also opportunities for SMEs in this climate. “Regarding Brexit, 90 per cent of our lending is in sterling, 10 per cent in euro. So we have very little exposure to the ‘Europe issue’ in that respect.

“But our euro-based SME customers should see Brexit as an opportunity for greater export thanks to the sterling devaluation. Price pressure is beginning to move through the supply chain in the UK.”

5: The rise of alternatives to traditional lenders in Ireland is happening, although there still remains a major shortfall in terms of options for most SMEs. “There is still a huge gap in financing choices for SMEs,” says Ciaran McAreavey, managing director for Close Brothers in Ireland. “But there are alternative funders such as ourselves picking up the slack. The more alternatives entering the market, the greater the opportunities for moving business forward in Ireland.”