Surge in number of businesses vulnerable to interest rate rises
Published: 17 July 2017
More than 79,000 businesses in the UK say they would not be able to repay their debts if interest rates were to rise by even a small amount.
That’s an increase of nearly 60,000 since last September.
The figures are based on a long running survey conducted by
the insolvency and restructuring body, R3. Its researchers also found that
96,000 firms were only paying interest on their debts.
Andrew Tate, spokesperson for R3, said: “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.
“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
“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 research highlights the need for firms to keep a tight rein on credit control and to take prompt action over late payment of invoices.
Firms in distress often only pay creditors who actively
chase up debts and ignore those who take a more relaxed approach. If a creditor
waits for too long, the distressed firm may go out of business making the debt
very difficult if not impossible to recover.
A letter from a solicitor is often enough to secure payment.
If not, there are several other measures that can be taken up to and including
Please contact Matthew Sigsworth in our Dispute Resolution Team if you would like help with credit control and debt collection.