How the rising costs in inflation can impact business owners short and long-term with David Gens

Small Business Canada

CEO of Merchant Growth & Tabit

David Gens is the Founder, Chairman, President & CEO of Merchant Growth and tabit, Canada’s largest fintech lending platform and Canada’s first B2B Buy Now, Pay Later payment platform. Merchant Growth is an online small business finance company and has funded over $300M in 5,000+ transactions since 2009. Tabit is a B2B Buy Now, Pay Later solution powered by Merchant Growth. Tabit was founded in 2021 with the purpose of bringing the consumer buying experience to B2B.


According to the data collected by Stats Canada, the consumer price index (CPI) rose to 5.7% up from 5.1%. This is the largest gain in inflation since August 1991. What sort of effects will it have on Canadian small business owners?

Small business owners will either absorb increased costs into their margins or try to increase prices. Overall, it has a negative effect on small businesses — potentially squeezing margins or putting downward pressure on volumes, depending on how customers respond to price increases. The negative effects of inflation are tough to avoid. 

With the Bank of Canada raising the key interest rate this month, small business owners could get the short end of the stick from both sides — inflation means product prices will go up, and higher interest rates might mean less disposable income from consumers. 

Higher rates often translate to higher monthly payments for business owners who carry a balance on their business credit cards or lines of credit. For so long, many businesses had the “if it’s not broken, don’t fix it” mentality around payment and lending processes, but our recent study with tabit showed that small businesses are interested in flexible, digital-first solutions, where payment installments are made over time. This signals a shift toward the buy now, pay later (BNPL) trend in B2B, as we’ve seen in B2C.


Monthly gasoline prices also rose to 6.9%. How do you think the rise in the prices of everyday goods will impact business expenses?

Transport costs affect almost all businesses — either in procurement costs or delivery costs. Most small businesses will notice this impact, not to mention the reduction it causes in discretionary spending budgets for consumers. 


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The costs for owned accommodation as well as rented accommodation have also increased. What would you like to say about that?

I’ve heard many stories of small businesses that have generated more wealth from real estate properties owned by their business than they had ever generated in operating income. The rise in real estate prices has been mind-blowing. For those that weren’t lucky enough to ride that wave, it has made things more difficult. The same entrepreneurs who’ve shared those stories of commercial real estate appreciation also say that if they needed to buy that same piece of land or warehouse to operate today, they’d never be able to make the numbers work. So it’s undoubtedly a challenge. It’s another reason why ensuring all businesses, from brick-and-mortar to e-commerce, have access to fast, affordable and reliable capital is so important. 


With the inflation and interest rates becoming higher, what according to you are the important points that the business owners need to take into consideration while doing financial planning?

There is no question that inflation and rising rates present challenges for small businesses. Now is the time to focus on operational efficiency as well as inventory management. In the last couple of decades, we’ve seen a secular trend towards “just-in-time” inventory management. On the surface, minimizing inventory makes sense. It reduces the amount of capital required and therefore increases your return on capital. However, with supply chain shocks and inflation, we can see how that can catch a business off-guard. Holding enough inventory is important to mitigate certain risks — like supply chain shocks and inflation. 


What advice and tips you would like to share with the business owners who are feeling the impact of persistent inflation? And what are the resources and alternative solutions available to help them?

With inflation, business owners should consider buying more inventory now, and potentially financing that purchase via an SMB lender, in order to lock in prices and hedge against further market fluctuation. Apart from that, continued effort to stand out amongst the competition and successfully pass on price increases will be key to maintaining margins. 

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CanadianSME

Over the past 12 years with my company, Merchant Growth, we’ve supported Canadian small businesses with hundreds of millions of dollars through non-dilutive, flexible financing rooted in technology. And our new solution, tabit, was built for exactly these reasons in the B2B world — helping small businesses better manage cash flow by partnering with large suppliers who can offer flexible payment options. We know that credit is notoriously hard to get, and rising rates aren’t helping. With tabit, businesses can improve cash flow, grow sales, and eliminate clunky administration operations and costs — all while economic instability lingers.

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