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How SMEs can cope with rising material costs

Rising material prices are squeezing already thin profit margins at SMEs. How can small business owners manage the increasing costs? Alternative finance is part of the solution.

A new survey from the Federation of Master Builders has shown that margins at over half of the country’s small building firms are being squeezed as a result of rising material prices. Almost the same amount have been forced to pass on some of the increase to customers, while just under a fifth of these companies are making losses on projects because of the rise in prices.

Furthermore, major UK food processing company Flatfish has attributed an almost 50% reduction in its bottom-line profit to raw material price inflation, while prominent seafood distributor Lyon’s has also blamed increased costs for a significant drop in its profits.

The depreciation of the pound and the impact of Brexit on market dynamics are widely considered to be the main factors behind the rise in material prices.

Regardless of the cause, the increase in raw material prices comes at a bad time for SMEs, which are already shouldering the financial burden of various policy and non-policy costs. Business rates is one such cost whose impact has recently made the headlines.

So, how can small business owners cope with yet more pressure on capital and cashflow? Alternative finance can help them manage the pressure.

Access to finance is essential for maintaining momentum and developing and growing a business, and with traditional lenders still proving cautious with regard to small business funding, more and more SMEs are using accessible, affordable and flexible non-bank finance services, such as invoice finance, peer-to-peer lending and crowdfunding.

Tellingly, a new report, SMEs: Smallish Misunderstood Enterprises, claims that a significant amount of companies still feel underserved by traditional lenders. Almost two-thirds of the firms surveyed for the report said that banks made little effort to provide SME-specific services. As such, it’s not difficult to understand the upturn in the popularity of alternative finance services.

This is how a Sussex-based firm used peer-to-peer lending, through a commercial finance broker that specialises in alternative finance, to raise the cash to buy new equipment.

Small businesses face some serious headwinds in 2018 and managing rising material prices is another burden they have to bear. In the current environment, this is no easy feat. Alternative finance can help them achieve it.

To find out more about A&T Business Associates services, contact Tony on 01903 602211 or tony@atbusinessassociates.co.uk.

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