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No-deal gamble: Bank of England says that SMEs are most unprepared for cliff-edge Brexit

Small businesses should speak to their banks about their debt facilities now, ahead of a possible no-deal Brexit, advises KPMG.

Banks have been putting small businesses under the microscope, figuring out which ones would be most vulnerable if Britain were to crash out of the European Union without a deal.

SME lending could be tightened up as the shock of a no-deal Brexit reverberates around the economy.

“Credit could be a little squeezed in the interim. If you haven’t had that conversation with your high-street bank, best have it now,” said Richard Bernau, director at KPMG.

Small businesses should ensure that their working capital facility remains intact should the UK suffer a disorderly exit from the EU, check the employment status of European Union nationals, and make sure their international supply chains are robust.

Although the Bank of England believes the banking sector is well prepared for a no-deal Brexit, SMEs could still find their access to credit dry up in a sudden downturn.

“Any bad or malign economic impact will have an impact on their ability to lend and the terms they are prepared to do so,” Andrew Pilgrim at EY told the Daily Telegraph.

Bernau said that banks are continuously running stress tests on small business creditors, trying to understand where the credit risks are. What is different compared to the financial crisis of 2008 is that banks are prepared to support small businesses, Bernau said.

For example, Barclays launched a £15bn Brexit fund to help small business through Brexit last March.

KPMG says that preparations for a hard Brexit have noticeably ramped up in the last month, with putative Prime Minister Boris Johnson talking up walking away empty handed.

Bernau said: “Banks are readying themselves for a no-deal Brexit and are looking to cushion the UK economy from the worst impacts. There’s a greater desire to be supportive than there was in 2008, when banks just pulled the teller blinds down.”

KPMG has been advising one high-street bank in particular on how a no-deal might affect small business, but has been working with every high street bank on Brexit issues in general.

The Bank of England has found that 80pc of businesses believe they are prepared for a no-deal Brexit but about one in ten have no contingency plan and did not expect to develop one. SMEs were more likely to have not prepared for a cliff-edge Brexit.

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