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How SMEs can manage rising supply chain costs

While the small business sector is displaying a commendable level of resilience, the threat posed by the supply chain crisis is growing. It is vital that firms are able to manage the impact, including rising costs. The question is, how can they do it?

The escalating supply chain crisis, caused by the pandemic and Brexit, presents a serious threat to the future of many small businesses, as they face mounting challenges relating to rising inflation and increasing raw material prices, worker shortages and delivery delays.

According to a new study from MarketFinance, over three quarters of SMEs have had to manage increased prices from suppliers in the last six months, with a quarter of all the companies surveyed reporting that supplier prices had almost doubled over that period.

Small businesses most vulnerable to supply chain crisis

While the disruption to the global logistics network caused by the pandemic and the end of free movement of labour as a result of Brexit are affecting companies of all sizes, small businesses are particularly vulnerable.

Tellingly, business leaders from across the industry spectrum told a recent House of Commons business, energy and industrial strategy committee that small businesses would bear the brunt of the supply chain crisis. And the impact of this crisis is forecast to be felt until at least 2023.

SMEs face prolonged pressure from supply chain problems

The small business sector is showing resilience according the MarketFinance study, which reported that a third of SMEs have been able to absorb the increased costs without passing them on to customers. The ability of these firms to roll out such a strategy is encouraging but their capacity to do so on a longer-term basis remains uncertain. Notably, a fifth of businesses said that they had had to pass on a portion of the higher costs.

If small businesses are going to survive the supply chain crisis, while limiting what they pass on to customers, managing cashflow and capital reserves in the face of rising inflation will be critical. Alternative finance can help them achieve this goal.

Supply chain woes and how alternative lenders can help

With regard to alternative finance, in the wake of prolonged caution from traditional lenders, which is an issue that has returned during the pandemic, services such as invoice finance, asset finance and peer-to-peer lending, are proving a vital source of capital for small businesses, both for maintaining cashflow and for essential investment.

These facilities, which offer a more easily accessible and personalised approach to lending, are helping small businesses survive and target recovery and regrowth.

Furthermore, alternative lending is playing a prominent role in the government’s headline emergency support scheme, the Recovery Loan Scheme (open until the end of June 2022). Invoice finance and asset finance between £1,000 and £10 million per business are available under the initiative. This profile is helping cement the reputation of alternative finance in the business sector.

Managing the supply chain crisis and SME finance options

The supply chain crisis is a serious threat to the small business sector and rising the challenges that it presents won’t be easy. Careful management of cashflow and capital reserves will be vital. This is why it is vital that business owners are aware of all the finance options available to them, from the services of traditional lenders to alternative finance facilities.

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

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