SMEs extend machinery asset life as supply chain issues hit

SMEs have been forced to extend the life of their existing assets as global supply chain issues reduce the availability of new assets, Paragon Bank research has found.

Paragon’s survey of over 500 businesses, conducted on behalf of the bank by Opinium, found that nearly a third of SMEs (30%) had operated existing machinery longer than planned in the past 12 months, with 29% acquiring pre-owned machinery due to the unavailability of new assets.

A fifth of companies reported that they had refinanced an existing machinery asset.

A similar story was reported with commercial vehicles, with 34% of SMEs running these for longer than planned and 20% acquiring pre-owned equipment.

The problem with the supply of new assets forms part of a wider issue SMEs face with the broader supply chain, with companies reporting a deterioration across several areas of supply.

The main issues businesses faced were in the cost and availability of goods – 43% of SMEs said the cost of goods and services had worsened in the previous three months, versus 23% that said it had improved. Meanwhile, a third (32%) of companies reported the availability of goods and services had worsened, against 26% that recorded an improvement.

SMEs also recorded a deterioration in the reliability of suppliers (32% worsened/24% improved) and the financial stability of suppliers (26% worsened/23% improved).

Improvements were seen in the areas of ESG practices, with 26% of firms reporting that supplier performance had improved against 14% that recorded a downturn, and suppliers hitting service level agreements (23% improved/20% worsened).

John Phillipou (pictured), Paragon Bank SME Lending Managing Director, said: “Supply chains were significantly disrupted by the Covid pandemic and are only just getting back on their feet today. Up until recently, it was near impossible for SMEs to secure the new assets they required, so they have been forced to use existing assets for longer and to refinance them to support cashflow. We have certainly seen a strong increase in lending against refinanced assets.”

He added: “More broadly, companies have experienced disruption in their supply chains, particularly in areas such as the availability and cost of goods. We would expect to see these pressures ease as inflation comes down and global supply chains return to more normal conditions.”