Investment is integral to generating growth in the small business sector, but while confidence is increasing, market headwinds remain fierce. Looking ahead, as the second half of the year begins, how can firms afford to spend?

Is an uptick in investment on its way?

According to the latest SME Trends survey from the CBI, business confidence among SME manufacturers has stabilised in the quarter to April, after five consecutive quarters in which optimism levels fell.

At the same time, a survey from Sharp revealed that almost half of SMEs are keen to increase investment in the next six months. This includes more than 50% of firms stating that they hoped to invest more than £20,000 on IT, with around one in 20 eyeing up a spend of more than £100,000.

These findings provide some much-needed positive news for the small business sector, which has been under siege of late. However, conditions remain challenging. Energy costs continue to be a major threat to smaller firms, with rising interest rates, high inflation and the recent hike in corporation tax all proving strong deterrents to investment.

Lack of spending in key areas shows impact of costs crisis

Notably, a new study from Oxford Economics has underlined the impact that rising costs is having investment in net zero targets by small businesses. The survey revealed that over 40% of SMEs have made going green less of a priority because of the increase in the cost of doing business. This is despite rising awareness among business owners that decarbonisation is a critical area to invest in.

A similar analysis can be applied to investment in cybersecurity. While the desire to increase investment in IT outlined by the Sharp study highlights an awareness of the issue, the fact remains that small firms are dragging their feet with its comes to putting the necessary cyber-protection systems in place, with cost the primary factor.

SME investment goals and how alternative finance help

The combination of growing confidence and a continued inability to invest is an acute reminder of the challenging position that small businesses find themselves in. It is hardly a shock that firms are reluctant to invest given the current state of the market, but this spending is integral to growth. 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.

Investment in 2023 and SME finance options

It remains to be seen if the stabilisation of business confidence turns into tangible growth in the second half of the year. The timetable of recovery is still unclear. However, increasing investment is vital to growth and the appetite to spend is rising again. This is why it is critical that businesses 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.