Examining the SME Investment Landscape after Brexit

22nd July 2016

Britain’s decision to leave the European Union (EU) has triggered a new economic and political era that will be more clearly defined over the coming months and years. IW Capital’s recent reports have commented on the implications Brexit could have for Britain’s venture capital schemes such as the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS). These reports concluded that Brexit could exempt the EIS and SEIS from EU regulations on state-aid, and increase the pool of investors and businesses able to use venture capital schemes.

Whatever the direct outcome of Brexit, British businesses have demonstrated resilience, dynamism and adaptability in the weeks following the EU referendum. A recent poll by the Institute of Directors found that 34% of company CEOs planned to hire at the same pace as before, while an additional 54% said they had no plans to cut investment. These views are also supported by the Bank of England’s announcement this week that the national economy showed no signs of slowing down over the past month.

While Britain remains in a position of economic strength, our newly appointed Prime Minister and Cabinet must ensure that Britain’s business ecosystem is able to support scaling businesses. Accessibility to growth finance must be a key priority moving forward, in order to ensure that disruptive enterprises looking to establish a firm and visible footing in their respective industries can continue with their long-term development plans. However, a failure to acknowledge this in the wake of Brexit could create a restrictive landscape for the private sector.

There have already been significant industry moves to increase the total volume of capital available to SMEs. On 21 June the British Business Bank revealed that it had raised its total supply of finance to businesses and now supports over 48,000 SMEs. Furthermore, by increasing the total volume of loans available to businesses, the Bank has also been proactively enhancing business knowledge towards alternative finance options.

An important question now is whether private investors will follow suit and continue their support of Britain’s small businesses. To examine this issue and the impact of Brexit on UK investors, IW Capital has conducted independent research across 2,000 UK consumers and investors. The research, which will explore investor sentiment towards SME investment in the current climate, will be published in our upcoming report titled ‘Understanding Investor Sentiment in the Wake of Brexit’. We look forward to sharing this with you soon.