Interest rate increases could hit northern firms hard
Northern businesses would struggle to overcome their debts if interest rates were to rise by just a small amount, new research has revealed.
According to insolvency and restructuring trade body R3, one in 11 northern firms would not be able to pay their debts.
That equates to 29,000 businesses in the region – around 9% of the total – that would face severe financial problems, compared to 17,000 in a similar survey from September 2016.
The research, carried out in partnership with consultancy firm BDRC Continental, found that 4% of firms are only paying interest on their debts and are thus constantly under pressure.
R3’s North West chairman, Paul Barber, revealed the figures represent the first time since 2014 that businesses have said they would be unable to cope with a small interest rates rise.
He pointed to a rise in corporate insolvency and slower than anticipated economic growth as reasons for this fear.
According to Mr Barber, many firms are “walking a very tight line” although he also suggested that some of those just paying interest on their debts could be taking advantage of low rates to fund growth.
The number of firms showing signs of distress has fallen from 24% last September to 10% currently, while 61% of northern firms have reported growth signals, a marginal increase on the 60% who did likewise in September.
A negligible number of firms have had to renegotiate payment terms with creditors; a similar number to those struggling to pay debts when they are due.
With the costs of materials rising, the research also found that businesses are facing threats in the supply chain and that external factors can cause financial distress very quickly.
Not only has limited the options for some firms, but it has increased the risk of insolvency for those that are overly reliant on one main client.
If a business does fall into too much debt, a number of restructuring options may be available to help a firm get back on track.
The key is to identify what issues are present and to act accordingly, with swift action more likely to result in a favourable outcome for all concerned parties.
By Phil Smith