Employee pay is headline news right now – thanks to WH Smith, M&S and Argos – but labour costs present a very different problem for small businesses. With finances under severe pressure, how can these firms afford rising wage bills?

While the failure of some of the country’s biggest high-street brands to pay its staff minimum wage (with almost £5 million owned to an estimated 63,000 workers) is grabbing the nation’s attention, the challenge facing smaller firms is one of increasing staff wage bills.

Meeting salary demands has become more and more difficult for these companies, in particular as they target new talent, as the market, already hit by a widespread labour shortage, has reacted to rising inflation and soaring energy and other costs. In addition, the national minimum wage was raised in April, adding an extra £1,600 a year per full-time worker.

For firms already surviving on thin margins, paying larger salaries is far from straightforward and the strain that higher wages and other rising costs puts on cashflow presents a major barrier to growth in the sector. There is even a danger that rising labour costs could push a significant number of businesses into bankruptcy.

Labour costs and how alternative finance help

Employees are integral to the success and growth of small businesses and it is understandable that people are seeking a fair wage as prices rise. But this is adding to the burden on small firms. It’s a difficult situation, but businesses have to find a way to invest in their workforce. 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.

Rising wage bills and small firm finance options

Managing wage bills is becoming increasingly tough for small firms. But with key talent integral to growth, they have find a way of affording to retain and recruit key personnel. This is why it is vital that business owners 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.