If small business owners expected this year to offer some relief after a very difficult 2022, they were sorely mistaken. Yet, they kept going, maintaining forward momentum in the face of extraordinary headwinds. How did they do it and what lies ahead?

What have been the big challenges for small firms?

Where to start with the challenges that small businesses have had to respond to in 2023 (because there have been many)? The “cost of living crisis” is certainly a contender for phrase of the year and the sharp end of this stick for small firms has been energy costs. The decision by the government to end the relief scheme in April didn’t make managing higher bills any easier, in particular for businesses stuck on higher tariffs.

Rising costs has also been visible for businesses in terms of recruitment and talent retention, with a highly competitive market pushing up salary expectations. Having to pay more for materials has also been a significant burden, carried on from 2022, although this seems to have eased towards the end of the year.

Data protection and closing gaps in cyber-security has remained a critical issue for smaller firms, with the continuation of the trend for working at home (with staff using unsecure hardware and systems) making efforts to reduce vulnerability difficult. Cost, in many forms, has continued to prove a primary obstacle to putting in place stronger cyber-protection.

Late payment and business rates are other issues that have continued to weigh heavy on smaller firms. Despite plenty of lobbying and public pronouncements, progress around either matter has been minimal. The announcement of new measures to tackle late payment by the government towards the end of the year has offered a little optimism, but those afflicted by the practice are unlikely to put much stead in yet more rhetoric.

Staying with government action, policy mismanagement has played a key role in suppressing any upwards economic momentum during the year, with the Spring Statement and Budget hitting only a few right notes. Businesses will be hopeful that the economic and political climate improves in 2024.

Talking of climate, the drive for greater sustainability and more action to meet net zero targets has asked small firms to find yet more money for investment. While decarbonisation is vitally important, changing systems and introducing new ones comes at a price.

Accessing finance and how alternative lenders are helping

The pressure on small firm cash flow has remained severe over the last 12 months and, notably, a fresh retreat from small business lending by high-street lenders has only made conditions more challenging. The trend is arguably a sign of the general state of the economy, but at a time of significant vulnerability and flat market conditions, it has been a hugely unwelcome development.

However, despite these headwinds, smaller businesses have found a way to access finance and stay afloat and pursue targets. One of the ways in which they’ve done this is through alternative finance.

Services such as invoice finance, asset finance and peer-to-peer lending are proving a vital source of capital for small businesses in the current funding climate (with 65% more SMEs experiencing difficulty in accessing finance from high-street banks as of August 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.

This profile has helped cement the reputation of alternative finance in the business sector, with a new study showing that more than 50% of small businesses are looking to use finance to achieve growth in 2023.

Small firm finance options for protecting cash flow

Taking stock of the year, alternative lenders have again proved an important source of finance for small businesses. If the use of alternative finance has gone somewhat under the radar, this is perhaps because these facilities are increasingly becoming part of the mainstream – part of the small firm finance furniture. While firms look hopefully to 2024, given the current economic and political landscape, the status of alternative finance is only likely to grow going forward.

To find out more about A&T Business Associates services, contact Tony Hedger on 01903 602211 or tony.hedger@atbusinessassociates.co.uk.