‘Storm clouds’ gather over UK SMEs as inflation bites
UK small- and medium-sized enterprises (SMEs) are facing relentless costs pressures driven by rising inflation and high interest rates, according to research from alternative funding provider Nucleus Commercial Finance.
It found that for the next 12 months the top three threats according to SMEs are high levels of inflation pushing up internal costs, including staffing costs (40 per cent), unprecedented utility bills (37 per cent) and high levels of inflation pushing up external costs (35 per cent).
The mental health of their employees was also a cause of concern for 15 per cent of company bosses, while recruitment and skills shortages were highlighted by 12 per cent of those surveyed as an area of concern.
Read more: 275k SMEs at risk of failure due to economic volatility
To address these threats, more than a quarter of SMEs are increasing the price of their products and services (26 per cent), while 17 per cent are planning on switching utility or service providers, and 13 per cent are upskilling their workforce.
“UK SMEs are looking aghast at the storm clouds overhead – fully aware of the challenges posed by the year ahead,” said Chirag Shah, chief executive and founder of Nucleus Commercial Finance. “While rising costs are typically top of mind, it is notable that we are seeing such heightened awareness of mental health and a recognition of the importance of people in building, sustaining, and growing a business.
“But addressing all these challenges requires a financial safety net – something that too few businesses are in a position to build. Some can be delayed or simply patched for the short-term. But, for those issues deemed business critical, it is imperative that finance providers are at hand. By being able to rapidly and accurately assess requests, and then deliver the appropriate financing, they can help ensure that SMEs are in a position to thrive when the sun finally comes out.”
Read more: Quarter of SMEs pause investment in growth and innovation
The picture is similar in the US, where small businesses are struggling to secure finance in the wake of the Federal Reserve’s decision to hike interest rates.
The latest Biz2Credit Small Business Lending Index, for February 2023, reported that big banks approved just 14.2 per cent of applications in February, down from 28.3 per cent in February 2020.
Small banks granted about 20 per cent of loan applications this February, but they were approving about half of all requests back in early 2020.
However, alternative lenders topped the list, approving 27.9 per cent of all loan applications from small businesses. Credit unions approved just one in five applications for finance (20 per cent).
Meanwhile, according to alternative finance provider ThinCats, the failure of Silicon Valley Bank and Credit Suisse among others may impact the ability of mid-sized businesses to access new funding either via banks or through non-bank lenders.
Read more: Demand for SME finance rises but access may be more difficult