Chirag Shah, CEO and Founder of Nucleus Commercial Finance

After a slew of expensive energy payouts to households and difficult decisions to get the vast amount of Government debt to fall, the Government seemingly remains committed to getting inflation to halve by the end of 2023. However, to compensate, latest figures show all of this has led to a record borrowing of £27.4bn in December 2022, jumping by £16.7bn against the same month last year. Indeed, interest payments on Government debt jumped to £17.3bn in December – the highest December on record – as a result of sky-high inflation1. Chancellor Jeremy Hunt certainly has a tough agenda to deliver on this year.

So, what does this mean for those SME businesses struggling to keep their doors open?

While December’s slight decline in the UK’s headline inflation rate to 10.5% will be broadly welcomed by households and businesses alike as a sign that price rises may have finally peaked. For British SME’s there remains a monumental hill to climb. 

Much of the damage has already been done and may prove irreversible for many. Up and down the country, small businesses fear closure, potential blackouts, and unavoidable layoffs in the year ahead. This was exacerbated by the Chancellor’s recent decision to cut energy bill support and is an issue this slightly more positive news on inflation just isn’t able to mitigate.

Their staff too continue to be squeezed, getting poorer by the day in real terms as wages continue to outstrip inflation. According to the Financial Times, FTSE 100 companies handed their staff average pay increases of about 6% last year, failing to match the surge in inflation, with many UK executives now locked in tense disputes with employees and unions as they hash out pay deals for the next fiscal year. And while some FTSE 100 companies – and other, smaller firms – may have been able to offer one-off payments to try to alleviate some of the immediate financial pressures following the pandemic, it’s clear that by and large these have not stretched nearly far enough. 

Our latest research found the majority of UK SMEs (88%) plan to lean on business finance and credit this year in order to patch glaring financial holes in their ability to meet staff salaries and other high running costs. A further third (33%) of SMEs expect to use business finance to cover unavoidable rising overheads, while one in five (20%) are likely to do so in order to pay off existing debt2.

Crucially, however, the ambition and hunger of SMEs continues to shine through. Our research revealed that while 38% of SME business owners plan to take on more debt this year, this is mainly to seize growth opportunities and 30% plan to make their businesses more environmentally sustainable. Additionally, there may be further hope for business owners later this year should the cost of borrowing start to lower.

But these opportunities must be within reach. Here, as ever, finance is key. It is those lenders that are able to deliver rapid and accurate evaluations that will make the difference. 

Fast and reliable access to affordable finance is the key to business growth, and with it, the UKs economic engine. Optimising the ways that business finance providers can meet the needs of their clients by leaning on fintech capabilities is absolutely crucial, if British business is going to reach its true potential at a time of unprecedented change and volatility.

In addition, it is vital that we see a joined-up approach and focus from the Government and specialist finance providers to work together, raise awareness, and improve access to affordable financial support. 

Fundamentally, UK businesses won’t be able to grow successfully if the finances are not well maintained. Getting this right isn’t just about growth. It also greatly reduces the chance for things like financially induced stress to occur.

All of this is, of course, easier said than done. All too often, SMEs are unaware of the specialist support available to them or feel it just isn’t applicable to their business case. There has been so much evolution in the business finance space that, almost regardless of the scenario, there are products and resources that can help. As the business landscape continues to prove challenging, SMEs need to remember that they don’t and shouldn’t face it alone.