Our latest research shows that Britain's SMEs are cautiously optimistic about their prospects for the year ahead but nervous about the extent to which their costs are set to rise. The Close Brothers Business Barometer gives a quarterly outlook on SME attitudes, opportunities and threats. It reveals that almost half (49.5%) of SME leaders now believe the UK economy is on an upwards trend, albeit with differing views about the pace of the recovery. More than a fifth (21.7%) say they expect their business to perform more strongly over the next 12 months. 

Nevertheless, many SMEs also see substantial cost pressures threatening their ability to grow sustainably. Almost a quarter (24.4%) of businesses say their biggest worry about the coming year is coping with the cost of the national living wage, which rose 4% to £7.50 an hour for the over-25s in April. Almost as many SMEs (23.3%) say their biggest concern is rising business rates, with the levy due on 1.8 million commercial properties also having risen in April. Another problem is that SMEs' customers continue to pay their bills late.

To overcome these challenges, SMEs will need to ensure their businesses are built on solid foundations, with cash flows robust enough to withstand the day-to-day difficulties caused by rising costs, and the capital freedom to invest for future growth. This will require SMEs to consider all their potential funding options, including invoice finance and asset finance. Currently too few firms understand what is possible beyond conventional solutions. 

Improving SME awareness and knowledge of alternative finance would therefore be a crucial step forward in helping many businesses to fulfil the potential for growth they recognise. Solutions such as invoice and asset finance can provide businesses with flexible and scalable funding designed specifically for their individual needs - exactly what SMEs will need as they seek to balance cost pressures against growth opportunities.