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The SME cost squeeze 

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Small-to-medium-sized businesses (SMEs) are seeing costs going up but are struggling to pass these on. We commissioned research into how companies are responding and adapting to these pressures and how they are showing resilience in challenging market conditions.

John Phillipou, Managing Director of Paragon SME Lending, introduces our report into the issue, The SME Cost Squeeze, below. Download the report here.

For small-to-medium sized (SME) businesses, resilience has been the keyword for much of the past decade.  

Let’s just consider the events that SMEs have weathered since 2010. Exiting the credit crunch into an era of Government austerity, through to the Brexit vote and subsequent scruffy implementation. Plus, of course, a once in a century public health crisis and, today, a level geopolitical uncertainty not seen since WWII.   

But we see SMEs adapt, evolve, invest and often thrive. They find solutions to seemingly endless problems, often outside of their control or making.  And businesses are having to find that resilience today more than ever.  

Download the report

The companies that are the lifeblood of the UK economy - the SMEs that create jobs and opportunities and help communities to flourish - are enduring inflationary pressures not seen since the 1970s.  

Many are caught between facing increasing fixed and variable costs and not being able to pass those on to their own customers because they are in the middle of a contract that they are unable to renegotiate. This is, of course, creating cashflow issues for many companies.  

Our research tells us they are taking action across a number of areas. Some are absorbing these cost increases, others are cutting recruitment, reducing production, slashing research & development and - at least trying to - renegotiate contracts.  

One in five have increased their own prices and I would expect more to follow if inflationary pressures continue to worsen. Fortunately, many businesses still have cash at hand as they took advantage of the Government lending schemes during the pandemic, however these reserves are becoming strained. 

This report examines some of the pressures companies are under and some of the actions they are taking in response. As a lender, I would urge businesses to talk to their finance provider, to explore options together and to find solutions.  

The environment for many is tough, but as history has shown, SMEs find a way. They are resourceful, inventive and, of course, resilient.

Download the report