• Suppliers: A quarter of SMEs reported prices have almost doubled over the past 6 months as costs of raw materials increase around the world 
• Reaction: The majority of SMEs are absorbing the increased costs and only a fifth are passing on the additional cost to their customers  
• Outlook: Majority of SMEs are grateful to be in business and generating revenue despite the increased costs, and are prepared to accept up to a 20% drop in revenue

Supply chain issues and increasing costs have impacted SMEs countrywide and yet they seem to be handling it in their usual resilient stride. Fintech business lender MarketFinance asked 1,000 SME owners across the UK how they are managing rising supplier prices, what measures they have put in place and sought their long term outlook on the increasing costs of doing business. 

Supplier costs 

Four out of five (79%) SMEs have faced increased prices from suppliers over the past 6 months. An increase of cost of raw materials was the top ranked rationale for price increases by suppliers, most keenly felt by businesses in the north west of England (85%). This was followed by staff shortages, the ongoing impact of the pandemic slowdown and supply chain disruptions owing to a shortage of truck drivers. Across the UK, a quarter of SMEs reported supplier prices have almost doubled over the past 6 months. 

Impact 

A third of SMEs (32%) have been able to absorb the increased costs without passing them on to customers, suggesting that these businesses have the necessary cash reserves to handle the impact. Only a fifth (21%) are passing a portion of the increased costs onto customers. Businesses in the south west of England and Northern Ireland are least likely to absorb the costs while businesses in the north west and Yorkshire are the most likely to do so. Their customers are proving to be equally understanding of the wider supply chain situation with only a fifth (20%) challenging business owners about the price rises. 

Outlook 

Looking ahead to the festive season, SMEs feel they will be able to manage the situation but some could increase prices if the pressure gets too much. Two fifths reported they could increase their prices by as much as 10% in the run up to Christmas. Longer term, three quarters (73%) of SMEs are already preparing for the current higher prices to be the norm until at least the end of 2022. A third of SMEs (34%) have taken out loans or are using other finance facilities to manage the increased cost of doing business. 

Anil Stocker, CEO at MarketFinance, commented: “The current economic environment with rising costs is presenting some headwinds and headaches for SME owners but they are proving to be as resilient as ever.  The vast majority have been thinking ahead and accounted for the longer term scenario, which will hold them in good stead to do business. It’s great to see that SME owners are taking the long view and preserving their customer relationships and managing suppliers by having a finance facility in place to deal with the overhead for now. 

The British Business Bank announced last week that it will extend its Recovery Loan Scheme to June 2022. This extension will give SMEs easier access to more affordable finance they need to continue running and growing operations in the face of ongoing challenges such as staff shortages and supplier price increases.”