With the threat of significant job cuts looming over the economy as employment costs are set to increase, how can small businesses afford to avoid laying off staff and to recruit and retain key talent while managing the extra burden on cash flow?

Small firms are facing a highly challenging time in terms of employment costs. While the increase in employer national insurance contributions is grabbing the headlines, businesses must also deal with another increase to the minimum wage and changes to laws on unfair dismissal and sick pay, which have the potential to increase costs.

Furthermore, these developments come at a point when small firms are having to cope with a long-term trend of rising personnel costs. And it is clear that the issue is weighing heavy on the sector. The prospect of further labour-cost related pressure has left businesses considering major downsizing.

According to new research from the Federation of Small Businesses, one third of small firms are planning to lay off staff going into the new financial year, while another study shows that two thirds of businesses are limiting recruitment because of employment legislation. In addition, over half of small businesses consider labour costs as a major barrier to growth.

Paying staffing bills and how alternative finance can help

The reaction of small businesses to yet another rise in employment costs is hardly surprising, with the sector having to deal with unrelenting pressure on margins amid unending economic torpor. Increasing spending while safeguarding cash flow has rarely been more challenging.

This is where alternative finance can help.

While there was some improvement in the second half of 2024, coming into 2025 small business lending from traditional sources remains subdued, with 65% more SMEs experiencing difficulty in accessing finance from high-street banks. As a result, alternative lenders have become increasingly embedded in the small business finance landscape.

Services such as invoice finance, asset finance and peer-to-peer lending are proving a vital source of capital for small businesses in the current funding climate. These alternative finance facilities, which offer a more easily accessible, affordable and personalised approach to lending, are helping small businesses survive and target recovery, stability and growth.

Notably, the Growth Guarantee Scheme is providing a wide range of finance facilities to smaller firms, including asset finance, invoice finance and asset-based lending. This is further proof that alternative lenders are increasingly filling the small business funding gap.

Small firm finance options for managing labour costs

Large-scale job cuts from small businesses hardly bodes well for the sector and the economy. If firms are to avoid having to take such measures, with the government seemingly committed to its reform plan, it is vital that they have access to finance in order to pay the bills and protect cash flow.

This is why it is important, with traditional lender caution remaining, that key decision-makers are aware of all the finance options available to them, including the services of alternative lenders.

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