• Ann Juliano, CEO and Founder at Muse Finance


• 16.12.2022 03:15 pm
#fintechs

As the days get shorter and the weather gets colder businesses are preparing for their busiest season. This time is crucial for small businesses who expect to make two-thirds of their annual income in the winter period. However, the current economic climate is setting them up for failure.

After adjusting to the impact of Brexit, suffering the devastating effects of Covid and now keeping up with consecutive leadership changes affecting core fiscal and tax policy changes - small businesses are going into the most important time of year in the worst shape possible.

On top of this, there is a massive lack of financial support with SMEs being given loans as viable options. Legacy banks are failing to be adaptable to small business needs and a lack of flexible financing options is forcing businesses to accept loans which will further plummet them into debt.

Fortunately, there are new players coming to the market. Fintechs are able to be more agile in their approach which means they could offer the solution for saving the festive sparkle at this crucial time of year.

The economic landscape is looking bleak for SMEs

Small businesses have faced a host of challenges over the last few years. First, Brexit shrank customer bases and caused supply chain issues that led to major price hikes.

Covid then caused unprecedented problems. The world shut down which, in turn, meant businesses had to stop and re-evaluate. Small businesses lost huge numbers of the labour force for some time as workers became unwell or were encouraged to stay home. Supply chains were further disrupted, leading to shortages of parts and goods.

SMEs also saw a loss in demand and revenue as spending and consumption dropped. Fewer people shopped as their movement became restricted and they faced potential loss of income. In fact, businesses estimated that between April and June 2020, sales were 30% less than they should have been were the country not in lockdown.

All these factors have combined, making it harder for smaller businesses to absorb the cost of the pandemic - a situation that has only been increased by Russia’s invasion of Ukraine and the ensuing rise in the cost of energy, shipping and commodities.

The price hikes associated with our current cost of living crisis, plus unfavourable exchange rates are already forcing over 40% of SMEs to close. But small businesses that have survived to the end of 2022 aren’t in the clear. Recent changes to UK fiscal and tax policy include an increase to minimum wage that will increase their costs, and stealth tax freezes that will hurt their post-tax income.

The festive season is vital for small businesses

Despite the cost-of-living crisis, small businesses still expect to make two thirds of their annual income this festive season. Three-quarters of UK SMEs actually expect to make more revenue this year than they did in 2021. This is supported by consumer plans to spend as much as they did last year or even more. Though, the cost-of-living crisis is at the front of customers’ minds, as 88% admit they will reduce spending if the economy worsens.

However, small businesses are already questioning their ability to meet demand. Nearly nine in ten business owners (89%) believe they won’t have the inventory they need, while 96% are already facing shipping and fulfilment challenges.

Supply chain chaos is dampening festive sparkle

The current landscape is covered by a perfect storm of demand uncertainty and extra costs for SMEs. Plus, the geopolitical and financial chaos has caused supply chain bottlenecks that are making it difficult for businesses to access the goods they need, and ship their own products onwards.

The rising cost of living has made it difficult for supply chain planners to predict consumer demand for goods. Stock for the Christmas season is made and shipped months in advance. The current financial uncertainty may lead to incorrect forecasts, meaning SMEs won’t have the stock needed or will end up with an unnecessary surplus. Either way, they will lose out on money.

But that’s not all. As the all-important festive season approaches, many sectors are actually experiencing staff shortages that will make it difficult for them to meet demand. Energy shortages caused by rising gas prices and a reduction in Russian supply are actually causing some factories to ground to a halt.

All these problems are forcing small businesses to look for alternative options, which could wreck supplier relationships and delay much-needed payments for the goods and services they provide.

Fintechs can help SMEs access financial support

According to a recent report by the OECD, access to financing is still one of the biggest challenges facing SMEs. This is particularly pertinent given the current financial and economic crisis. As well as uncertainty around demand for goods, small businesses are also facing tightening credit terms that are affecting their cash flows.

In order to make the most of this vital festive season (or merely survive it), SMEs need access to flexible, tailored financing solutions to help bridge the gap as they wait for payments to make their way down a fragmented supply chain.

We strongly believe that SMEs shouldn’t have to rely on credit cards and loans to run their business. They must be provided with alternative financing options that don’t put them in further debt. But so far, legacy banks are unable to - or refuse - to offer them.

Luckily, smaller, more agile fintechs are beginning to offer financing options that are tailor-made to the needs of small businesses.

Supply chain finance is just one of these solutions. It allows small businesses to get paid by customers on-time (or even early) even if their goods haven’t yet reached their destination. It also means they can lengthen supplier payment terms, giving them much-needed breathing room if they are struggling with their overheads.

Some solutions (like ours) are FX-focused, meaning they provide the funds in the currency required to release the order. Muse is able to lock in FX rates so that businesses are not subject to the current volatility in the market, which will save time and headaches around FX management.

Small businesses can’t seem to catch a break. Following the impact of Brexit and Covid, they’re now facing a cost-of-living crisis and supply chain disruption. All this means greater costs and more uncertainty. Over 40% have already closed, and banks are unable to offer solutions that don’t put these struggling businesses further into debt.

Solutions like the supply chain finance offered by fintechs will give SMEs extra breathing room needed to concentrate on a strong festive season. On top of lengthening payment terms, they also take into account extra issues that can cost small businesses time and money, such as FX management.

Small businesses must be allowed to make the most of the next few months. Luckily, fintechs are here to add some much-needed cheer.