However, this could affect British businesses because banks will be likely to lower savings rates and adjust their probability of defaults (PDs) during the Brexit transition.
This means savers could lose out and banks will slow lending to riskier sectors due to their capital requirements rising as a result of rising PDs.
Since the last economic downturn, savers and investors have been increasingly turning to alternative finance products.
An example has been Peer to Peer lending and investing that is thought by some to be less geared to external factors than for example banks and also less geared to the undulating confidence that we will continue to experience during the Brexit transition period.
Using the same stress testing methodology as used by the banks, our own business has demonstrated the potential of our secured lending book to weather the worst-case Bank of England recession forecasts, while avoiding the drastic lowering of interest rates payable to investors that look likely to hit savers in banks.
There are several reasons for this relative stability of rates for both investors and borrowers. The comparatively low overhead model of Peer to Peer lending is one, however the significant factor is that Peer to Peer is usually able to offer fixed rates to investors that are not linked to base rates and that get more attractive as base rates fall.
This permits P2P lenders to lend based purely on their credit assessments of borrowers and higher PDs can be addressed by either reducing investor interest rates or raising borrower rates to cover expected losses (ELs).
It appears at present the peer to peer sector will take the latter route and are unlikely therefore to see a reduced investor demand whilst ensuring borrowers pay fairly for their loans.
The result is that funds should continue to flow through P2P platforms because they can potentially provide investors with a higher return than leaving cash in a bank savings account, albeit not with all of the same protections.
This means that businesses should still have viable, sustainable and reliable access to loans. As we have experienced with past downturns, recessions can effectively increase demand for Peer to Peer and its margins that benefits investors with higher rates than bank savings accounts while being able to cover any increase in ELs.
P2P interest rates for investors are also often fixed rate and that may be attractive to many, especially with talk of even lower bank savings rates (even negative) to come.
BrexitProof loans
For businesses in need of short and long term loans, there are also many BrexitProof options for them to consider.
Fixed rate loans offer businesses a stable way to predict part of their finances regardless of external market conditions.
