Research recently published by R3, the insolvency and re-structuring trade body, shows that some 79,000 businesses (4%) say they would be unable to repay their debts if interests were to rise by a small amount. This is almost four times the 20,000 businesses in this situation in September 2016. In fact, the research, part of a long-running survey of business distress, also found that some 96,000 firms (5%) were just paying interest on their debts.
The research shows the first increase in the number of businesses worried they would be unable to cope with an interest rate rise since 2014, and coincides with a period of slower than expected growth and a small rise in corporate insolvency numbers.
UK firms have faced a maelstrom of challenges in 2016 and early 2017, from Brexit to elections, austerity, inflation, increased business rates, the fall in sterling, the National Living Wage, pensions auto-enrolment etc. And now the prospect of interest rate rises is now very real, albeit nominal in historical terms.
The research shows thousands of firms currently walking a very tight line. Although, conversely, despite a rising number unable to afford a future interest rate rise, those already showing signs of serious financial distress continues to fall. Some 25,000 businesses (1%) say they are struggling to repay their debts when they fall due, down from a high of 134,000 (8%) in May 2013.
R3 say “A growing economy means fewer businesses are likely to show signs of serious distress. While it’s positive that signs of acute distress continue to fall, it’s no reason to be complacent. The latest GDP growth figures were lower than expected, while a healthy business’ finances can deteriorate rapidly depending on external factors, such as the cost of inputs or the failure of key customers or suppliers. Some firms are starting to find their room for manoeuvre increasingly limited.”
And, “General levels of business distress remain low and levels of business growth are still high, although growth has faltered slightly since a run of record or near-record highs from 2013 to 2015. Still, like the overall economy, the vast majority of firms have fared reasonably well over the last year. Any uncertainty over the consequences of Brexit hasn’t filtered through too much – yet.”
Interest rate rises added to the ‘casserole’ that is UK business’ challenge in the current climate, will doubtless be worrisome for many; a critical tipping point for some. If you believe your company to be exposed as a result of interest rate rises or any other factors, a confidential discussion with an experienced and qualified specialist to talk through the range of options available may well be beneficial before matters become beyond any control or rescue.
Please do not hesitate to contact us for an initial consultation, free of any obligation or charge.