Higher Costs Loom For SMBs Post-Brexit

In Europe, Brexit may be setting up to have an outsized effect on small and mid-sized firms, hitting them in the form of higher costs tied to banking.

The Wall Street Journal reports that the impact looms as banks could see nearly $18 billion in restructuring costs once the U.K.’s severance from the EU becomes reality. There could be billions more in new capital requirements, which means that lending (and thus, borrowing) may become more expensive. The projections come from a Boston Consulting Group and Clifford Chance study, and at least some of those costs will be borne by end customers.

The Journal noted that firms operating on a smaller scale, with annual revenue of less than 10 million euros up to 50 million euros (as classified by the EU) would be among the ones likely on the hook for the additional charges, as they tend to bank with only a single entity.

And in addition, according to the Journal, many firms do not have contingency plans in place to deal with a post-Brexit landscape. Loans typically provided by EU entities will not be in the offing. In tandem, the second quarter of this year saw loan applications from smaller firms slip by 14 percent year on year, the Journal stated, referencing the British Bankers’ Association.

Rising overdraft and other fees would mean that a long-standing trend in place for about a decade in the wake of the financial crisis would be over. The Journal noted that small- and mid-sized enterprises were charged a 3.9 percent rate for overdrafts and a 3.1 percent rate for a loan, as estimated by the Bank of England, versus respective rates of 4.1 percent and 3.3 percent last year. And, in the Eurozone, the small loans of up to five years in duration were 6.4 percent nine years ago and 2.3 percent this summer, as estimated by the European Central Bank.