SMEs have been on a difficult journey with inflation over the last twelve months, making the already challenging task of owning and operating an SME even more demanding. Rising prices cause a plethora of headaches for small businesses. Supply chains become disrupted and operating costs rise, demand falls as consumers feel inflation erode their disposable incomes, and, perhaps most damaging of all, key decision makers at SMEs put off big decisions as a general feeling of uncertainty rules the day.
This time last year, inflation sat at a 22-year high of 9.7% causing significant pain for SMEs who have already endured abnormal hardship as a result of the COVID-19 pandemic and subsequent global shutdown. Thankfully, after a sustained campaign of interest rate hikes by the Bank of England, a significant reduction in the rate of inflation has begun to set into the economy, with the most recent report from the ONS displaying a much-improved figure of 6.7%. The coupling of a reduction in the headline inflation figure with the recent pause on rate rises offers some comfort to SME owners that there will be some stability for the foreseeable future.
Despite a turbulent economy, SMEs have continued to show a remarkable ability to adapt and thrive. The latest edition of the FSB’s quarterly Small Business Index, finding a confidence increase of 6.2 points in Q3 2023 compared to Q2 2023, largely due to reportedly better revenues.. In fact, our most recent set of research also demonstrates this optimism with 29% of leaders in SMEs reporting higher than usual growth last year and more than a quarter planning to make new hires despite the tight state of the labour market. If economic indicators continue to improve and confidence returns to markets over the coming months, SMEs will be more comfortable to make bold moves and we should see an increase in corporate transactions and a return to larger levels of investment in big capital equipment projects to meet growing demand from consumers.
In the meantime, pain points will continue to present themselves to SMEs, so it is important that businesses seek the correct funding solutions to match their ambitions and circumstances. In times of high inflation, customers often try to delay payments to manager their cashflow, whilst businesses may be looking to purchase supplies up-front for fear of future price rises down the line to maintain margin. This often causes a cash flow imbalance for SMEs. For businesses with high levels of receivables in this situation, invoice finance could provide relief. By leveraging the existing value tied up in some or all of your invoices, you could create the headroom necessary to address any immediate cash-flow issues either by factoring or discounting them.
For those with significant receivables on their balance sheet, a facility we have seen increased uptake for in the current climate is asset-based lending (ABL). An ABL facility allows companies to leverage the value of their hard and paper assets to unlock additional capital. Flexible solutions such as ABL can assist businesses in managing their working capital needs and building the resilience they need to trade through periods of challenge. More so, however, we are also seeing businesses turn to the strength of the assets on their balance sheet to access funding for strategic projects, such as funding acquisitions or growth.
No matter the objective, if you are looking to secure additional funding for your business it is always worth consulting a specialist lender who can often provide a tailored solution that will aid your business in reaching its ambitions.
