The knock-on effects of job losses in the steel sector will be felt by a broad range of businesses, but new types of funding can help mitigate its effects.
The job losses announced last week at Tata Steel’s Port Talbot plant in South Wales are devastating for those who must now find new jobs in an area where employment opportunities are in extremely short supply. Sadly, those affected by the Port Talbot job cuts are just the latest victims of a far wider-reaching crisis in the steel sector, which has also hit steel workers in towns such as Redcar and Scunthorpe.
As these towns have developed alongside the steel sector over the past century or so, what has happened over the last 12 months represents potential catastrophe for the whole community. Workers employed directly by the steel plants are only the first people in a longer chain who will see their livelihoods threatened. Those employed by businesses that work for the steel industry in one way or another – further down the supply chain, say, or in providing services ranging from catering to security – will also suffer. And so too will the wider business community; as the disposable incomes of people in these towns decline, their ability to spend money in local shops, restaurants and leisure outlets, for example, will also fall.
How will businesses affected by the steel industry’s woes get through this crisis? Well, this is first and foremost a question of cash flow – in many cases, businesses will be sustainable and profitable over the long term as their owners and the UK government seek longer-term solutions to their problems, and those of the wider community. However, they will be vulnerable as the storm passes over them and as such will need to find ways to keep trading through the most difficult times and to “come out the other side”.
These businesses therefore may need to rethink their financial structures, and any existing funding arrangements in place. Many will need more flexible and bespoke forms of finance that provide the headspace required to get past the short-term difficulties.
Alternative forms of finance can play a valuable role for businesses feeling the pinch in this way. In contrast to traditional bank funding, solutions such as supply chain finance, invoice finance and a range of other options can be fine-tuned and tailored to an individual business’s needs. That can make all the difference as businesses try to smooth over short-term cash flow difficulties. Additional bolt-on products such as bad debt protection can also play a role, offer peace of mind in trying times.
Another possibility for businesses struggling with their current model is to alter their strategy in order to reflect the changing environment– to move towards products and services aimed at new customers and markets, for example. This however is likely to require investment in new capabilities therefore alternative sources of funding may provide the best solution in this type of scenario.
The bottom line is that such facilities are more flexible and personal than some traditional forms of finance, such as overdrafts and loans, which tend to be one-size-fits-all. For a broad range of businesses struggling in the face of very specific problems in towns such as Port Talbot, this sort of bespoke finance is crucial. As the steel crisis bites, these firms will encounter problems that are highly localised and alternative finance providers, which tend to employ industry experts who are much closer to the marketplace than the high street banks, will often be better placed to find the right funding solutions.
Key takeaways:
- The challenges faced by the steel industry are having a knock-on effect on other businesses that are reliant on strong performance along the whole supply chain.
- In the long term, businesses are likely to become sustainable and profitable again as their owners and the UK government seek solutions. In the meantime, it is imperative that other businesses in the supply chain are able to continue trading.
- Smaller businesses that are negatively impacted by others’ difficulties should consider alternative finance – and potentially bad debt protection - to bridge the gap.
- An alternative is to pre-empt any future challenges and look to alter your business model by expanding into new markets and/or products. Alternative finance can help keep cash flowing, enabling you to embrace new business opportunities.
Take a look at our latest infographic: Why SMEs can't afford to ignore alternative finance
