Just as cautious optimism and modest expansion was taking hold in the small business sector, this momentum has been checked because of the Iran war, with the threat to cash flow mounting. How can firms mitigate this risk and ease the financial pressure?

As the Iran war drags on, and its economic impact continues to grow, the consequences for small businesses are becoming increasingly stark. According to new research from The Director’s Helpline, over three quarters of SMEs are not sure if they can pay their bills next month. This staggering revelation points to an urgent cash flow crisis.

The study also revealed the worrying level of debt in the small business sector. Almost 80% of company directors admitted to significant liabilities, with nearly 60% owing more than £25,000, while well over a third were in the hole for more than £50,000. For 6%, the debt was over £250,000.

Unsurprisingly, as a result of this new wave of uncertainty, growth forecasts are set to be downgraded, and, for all the resilience the sector is showing, small business confidence is likely to take a hit as well. Notably, while confidence showed a slight improvement in Q1, it remains at a historically low level.

Looking ahead, rising inflation, linked to increasing fuel prices and energy costs, coupled with sluggish consumer spending and employee wage growth are likely to be key factors in the slowdown. Late payment pressures and other squeezes on capital, including in relation to cyber-security, are also set to contribute.

Alternative lenders and access to essential finance

If small businesses are going to overcome the latest bump in the road, and these firms have proved remarkedly hardy to date, safeguarding cash flow is critical. This requires access to finance. However, with traditional banks continuing to prove cautious when it comes to small business lending, firms face another sizeable challenge here.

This is where alternative finance can help.

Small business lending from legacy sources remains difficult in Q2, with almost 40% of firms are finding accessing affordable finance one of their biggest challenges. Notably, there has been a call for the introduction of legislation that would require banks to increase access to low-cost lending for small businesses.

In response, alternative lending solutions, such as invoice finance, asset finance and peer-to-peer lending, have become funding lifelines. For example, asset finance is being commonly used means for buying vehicles, machinery or equipment, while invoice finance is being employed to manage staff costs and, more broadly, to cover costs while income catches up.

Overall, by offering a more accessible, cost-effective and personalised approach to lending, these alternative finance facilities are helping small businesses navigate the current climate and target greater stability and growth.

Small firm finance options for mitigating cash flow threats

The results of the Director’s Helpline survey are a warning of the precarious nature of the small business sector – firms have been battling fierce headwinds for a prolonged period, with many clearly at breaking point. This is what makes the latest wave of rising costs such a threat.

Access to finance is critical to keeping wheels turning and the doors open – to safeguarding cash flow and maintaining liquidity. As such, with traditional lenders remaining cautious, it is vital 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 Steve Bowles on 01903 602211 or steve.bowles@atbusinessassociates.co.uk.