The European Commission has increased Ireland’s Rescue and Restructuring scheme from €20 million to €200 million. This ten-fold increase comes explicitly to offer rescue aid and temporary restructuring aid to Irish small businesses suffering from “acute liquidity needs” in the wake of Brexit. While this acts as a clear political signal from the EU that it intends to support Ireland, it’s still unclear how much effect a €200 million fund will actually have in the event of a no-deal scenario. Much more substantive support comes from the Bank of Ireland, which recently established a €2 billion Brexit fund for Irish businesses both north and south of the border.
As the only EU country with a land border to the UK, Ireland will be the country most directly affected by Brexit. Not only might Irish businesses have a new border to contend with, but they’ll also face a significant slowdown in trade.
Irish food production will likely be hardest hit
Trade between the two countries is valued at over £50 billion, and nearly all businesses that are currently involved in that trade will be forced to deal with some economic effect as a result of Brexit. The hardest hit will likely be the food industry, which exports €4.5 billion in food and drinks to the UK every year. The beef industry alone is facing as much as €700 million in additional costs under WTO tariffs.
Of course, neither Ireland nor the UK is likely to allow these kinds of trade conditions to persist for an extended period. In the weeks and months immediately following Brexit, however, businesses of all sizes could face prohibitive trade barriers. The Bank of Ireland’s, the European Commission’s, and a number of other Brexit funds such as the SBCI’s €300 million Brexit Loan Scheme are meant to help businesses offset these costs in the short term. In that time, businesses will either be forced to reorient their operations or to wait for the EU and UK to come to a new trade agreement.
Irish SMEs pay more for financing than EU competitors
While the SBCI’s Brexit loan scheme caps interest rates at 4 per cent, Irish businesses on average pay interest rates that are 3 per cent higher than those of their counterparts on the continent on loans under €250,000. While over 10,000 businesses are ostensibly eligible for the Brexit loan scheme, only 10 had actually received funding as of August of 2018. This puts the vast majority of businesses who will be forced to rely on financing in a difficult position. By taking out loans, they put themselves in an increasingly uncompetitive financial position compared to businesses employing similar tactics in the rest of the EU.
In order to ensure that they’ll be able to finance themselves in the coming months, Irish businesses need to explore all the financing options available to them to help them protect their businesses in the short term and to ensure their success in the longer term.
Getting financially prepared
With the variety of different funds available to businesses specifically because of Brexit, the vast majority of businesses will likely have access to funding resources in the coming months. High interest rates and relatively high rejection rates with some of these funds make it a good idea to come up with a number of alternative solutions. After all, March 29 is just 3 weeks away, and a traditional loan application can take longer than that to process.
Invoice finance is credit free
A great way to avoid interest rates is to use a form of financing that doesn’t have one. Invoice financing allows businesses to directly trade in an outstanding invoice to a financial institution for most of its value. Since the financial institution then holds the invoice and collects payment on it itself, repayment is assured, and no interest rate is necessary.
Supply chain finance offers an important payment reprieve
A great way to avoid complex and lengthy application processes is to use supply chain finance. This allows businesses to pay suppliers out of a credit fund that’s supplied by investors. It gives businesses the necessary funds to pay suppliers in the short term, but crucially, payments on the balance of that fund can then also be deferred for up to 90 days.
These tools, like the Brexit funds offered by the EU and major banks, allow businesses to cover their costs in anticipation of a larger solution. However they choose to finance themselves, Irish businesses will necessarily need to find ways to adapt to changing economic conditions, and to find a way forward as the UK-Irish relationship irrevocably changes on March 29.