Business owner working inside his cafe on a tablet.
From ongoing supply chain issues to higher interest rates, there are several finance-related trends that will impact small business owners in the coming year. — Getty Images/ Sunwoo Jung

Small businesses have gone through a lot over the last few years with the COVID-19 pandemic, making it difficult to stay afloat. Surviving companies were able to adapt and weather the storm. And now, three years later, the market is seeing a higher demand for goods and services — making it a challenge for small businesses to keep up without an injection of extra funding.

Here are seven financing trends business owners should look out for in 2023.

Possible recession

Inflation is at unsustainable levels and reached a whopping 8.5% in 2022 — the highest its been since the early 1980s. The Federal Reserve has continued to raise interest rates, but its goal is to keep rates within 2%. If a recession does occur, it will likely happen sooner rather than later to lower the percentage rates.

The good news is, even if we do enter a recession, there are still numerous positive market indicators, and the situation should improve in due time.

[Read more: Are We in a Recession? What Small Businesses Need to Know]

Small business lender restrictions

Banks and nonbank lenders are “tightening up,” which makes access to capital more challenging. Because banks and investment markets dislike unpredictability and are unsure of the economic direction, it will be increasingly difficult for small business owners to take out loans and access money the way they did before.

On the bright side, lending will come with fewer restrictions and loosen once banks know where the economy is going and who it impacts — geographically and demographically.

Higher interest rates

As mentioned, rising inflation and interest rates are due to pandemic shutdowns, supply chain issues, and demand increases, resulting in increased rates for consumers and businesses, which won’t be lowered anytime soon.

You can combat these surging rates by raising product prices for your customers, so there’s no need to “worry” about the increased rates from the supplier — don’t absorb rising costs.

Don’t have access to affordable capital financing? Try reducing your capital requirements until credit alleviates. Additionally, search for alternative financing options through seller/vendor financing, which is becoming more prominent.

Limited government programs

Unfortunately, small businesses are offered limited government assistance. Government programs kept many small businesses alive during the pandemic. However, the Paycheck Protection Program and Employee Retention Credit are no longer accepting applications at this time.

Small Business Administration (SBA) loans are another option, but only because loan rates have decreased over the years since the prime rate was low.

[Read more: 6 Popular Financing Options for Your Startup]

According to the National Federation of Independent Business, energy costs account for one of the top three expenses in 35% of small businesses.

Ongoing supply chain issues

Supply chain concerns began with the pandemic in 2020, which led to facility and port closures and manufacturing employees staying home. When the pandemic slowed, demand for products skyrocketed quicker than anyone could anticipate.

The significant impact on small businesses is made up mostly by the adverse impacts of supply chain issues, resulting in cash flow consequences. Products might get held up in transit and shipping, creating weeks or month-long waiting periods for smaller businesses — a troubling process for those who have maxed out credit lines.

To combat these issues, diversify your supplier base for domestic and international suppliers or broaden your product range to stay in stock.

Rising energy costs

According to the National Federation of Independent Business, energy costs account for one of the top three expenses in 35% of small businesses. Major energy expenses include travel reimbursements, heating, cooling, and equipment operation.

These rising costs adversely affect profitability. To reduce the impact of rising gas prices, you can improve route efficiency, shipping or delivery processes, or even consider a hybrid or electric vehicle. Utilizing ceiling fans, programmable thermostats, regularly maintaining units, and conducting energy audits can improve those high heating/cooling costs.

Pricing adjustments

Sales drive business growth, but only focusing on sales can lead to more significant issues — margin deterioration, cash flow issues, and losses. You might even feel inclined to reduce product prices or provide discounts to maintain the sales volume.

Ensure your prices are set high enough to maintain profit margins for your business to achieve strategic goals. The higher your profit margin, the better, allowing more revenue to flow to your bottom line.

CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.

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