While news of business sector growth is welcome, conditions remain tough, in particular for smaller firms, which are facing a brutal combination of rising costs and labour shortages. How can these firms safeguard cashflow in such a challenging environment?

Early signs of economic fillip but headwinds still strong

As the end of the first quarter draws closer, there are signs that the economy is bouncing back from the blip caused by Omicron. Despite the impact of the variant, which spiked recovery, the economy grew by the fastest rate since the 1940s in 2021, and new shows a notable upturn in private sector performance.

However, at the same time as the green shoots of recovery are trying to take hold, small businesses are facing some serious headwinds. Firstly, the upturn in economy conditions is causing inflationary issues, which are compounding the upward pressure being put on prices by pandemic and Brexit driven supply chain crises.

In addition, all businesses are facing a hike in national insurance contributions, by 2.5%, and an increase in the minimum wage, which will rise to £9.50 per hour. In terms of staff costs, the labour crisis is gaining momentum as the demand for workers continues to outstrip supply, in particular in the service industry where the double whammy of Covid-19 and Brexit has done the most damage, and those that remain demand better pay.

Smaller firms face a range of pressures on cashflow

At the same time, business are having to find the capital to invest in other areas, such as strengthening cyber-security systems, developing their use of workplace tech and contributing to net-zero targets. And then there is the looming prospect of having to repay emergency Covid-19 loans.

Therefore, while a revitalising economy offers good growth prospects, being a position to benefit from such an upturn is far from straightforward. Managing resources and protecting cashflow are rarely been more difficult, in particular for smaller firms.

So, how can manage these headwinds and their impact of their capital? An awareness of all the small business finance options available to them, including the services of alternative lenders, is vital.

Targeting growth in 2022 and how alternative finance 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 rising costs and SME finance options

As 2022 shifts into gear, small firms can be encouraged by signs that the economy is set to rebound as it did in the first half of 2021. However, any optimism is surely tempted by the broad range of costs that these businesses have to manage, not least in relation to rising prices and labour shortages. Navigating these choppy water requires skilful planning, including knowledge of all the finance options out there.

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