The news is good and bad. Small business confidence is rising again, but increasing costs and weakening demand are continuing to affect growth. So, what lies ahead and how can firms manage market conditions in the second half of the year and beyond?

Small firm survey results suggest hope…

Reports that business confidence is on the up again is certainly positive. According to new figures from the latest UK Small Business Index from the Federation of Small Businesses, small business confidence increased notably in Q1 2023 compared to the last quarter of 2022.

Research from NatWest shows a similar trend. The latest NatWest PMI survey revealed that SME optimism had reached its highest level for 11 months, with sentiment buoyed by stability around inflation and an improvement in supply conditions.

…but fears for the next 6 months remain

However, context is all important. Business confidence still remains below that reported for Q1 2022 according to the Federation of Small Businesses. While confidence is rising, pessimism remains the overriding sentiment in the small business sector, with soaring costs and failing demand primary factors.

Notably, Federation data show that over 40% of small firms saw a fall in sales in Q1 2023, with 92% reporting that their costs were higher than in the same period in 2022, with utilities seeing the largest increase, followed by costs relating to labour, inputs and fuel.

These results make for interest reading and beg the question, “what’s in store for small firms in the second half of the year?”. Rising confidence levels offers some hope, but there are dark clouds gathering, not least in terms of a potential further increase in interest rates.

Costs squeeze and how alternative lenders can help

To see small business confidence enjoy a significant leap in the first quarter of the year is encouraging, but the fact remains that conditions are very tough and there is every chance that they might get worse or at least remain as challenging as they are. For small firms, accessing finance is crucial to managing these conditions. This is where alternative finance can help.

Services such as invoice finance, asset finance and peer-to-peer lending are proving a vital source of capital for small businesses in a funding climate characterised by prolonged caution from traditional lenders. Indeed, the issue has returned amid highly challenging post-Covid-19 market conditions, with bank loans to SMEs falling by £14 billion in the year to March 2023.

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, alternative lending played a prominent role in the government’s headline emergency support schemes. This profile has helped cement the reputation of alternative finance in the business sector, with a recent study showing that more than 50% of small businesses are looking to use finance to achieve growth in 2023.

Accessing capital and small firm finance options

Are calmer conditions on the horizon or are small firms just in the eye of the storm? The jump is business confidence suggest firms want to believe the former. Only time will tell. Regardless, conditions remain highly challenging, with access to capital critical. This is why it is important that businesses are aware of all the funding options available to them, including 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.