79,000 businesses (4%) in the UK have said that they won’t be able to repay their debts if interest rates were to rise even by a small amount. This is almost 4 times the 20,000 business in the same situation in September 2016. The research, carried out by insolvency and restructuring trade body R3 and BDRC Continental, is part of a long running survey of business distress. The research also found that 5% of firms, totalling 96,000 businesses, were only paying interest on their debts.
Spokesperson for R3, Andrew Tate, commented: “This is the first increase in the number of businesses worried they would be unable to cope with an interest rate rise since 2014, and it coincides with a period of slower than expected growth and a small rise in corporate insolvency numbers.
“UK firms have faced a challenging 2016 and early 2017: the sharp fall in the pound has made things difficult for importers, while a rising National Living Wage and the roll-out of pensions auto-enrolment have added to businesses’ running costs.”
He adds: “Only paying the interest on debts is not necessarily a sign that a business is in distress: it may be that a company is taking advantage of low rates to invest in its operations or assets. But only repaying the interest is also a common characteristic of a ‘zombie business’ – a business only able to keep going because of an ultra-low cost of borrowing and with little chance of survival.
“The research shows that there are tens of thousands of firms currently walking a very tight line. Rising inflation may also lead to a double-whammy for struggling businesses: it may increase the chance of the Bank of England raising interest rates, and it would undermine the consumer spending that has driven the economy over the last year.”
The latest GDP growth figures were lower than expected and external factors such input costs or the failure of key customers or suppliers can mean that a financially healthy business can decline quickly. Credit insurance can provide a quick replacement of capital in the event of the insolvency or non payment of a customer or supplier. If you would like to discuss how credit insurance could benefit your business, please contact Acumen Credit Insurance Brokers.