Growing debt fears of small companies

A study by R3, the Association of Business Recovery Professionals, showed 46 per cent of small firms are concerned about finance debt, compared to 34 per cent in the last quarter.

The business distress index also showed more than one in three (38 per cent) of small businesses are worried about debt owed to trade creditors, a rise of 14 per cent from the previous quarter.

Andrew Walker, chair of R3 in Yorkshire and partner at law firm Irwin Mitchell, said: “An alarming minority of the business community, particularly in the North, are struggling to address their financial woes.

“If these distressed businesses continue along this downward trend they may lose control of their mounting debt, which will push them into insolvency in the coming quarter.

“These businesses are allowing their debts to manifest instead of being able to pay them off; things aren’t improving for these businesses which are of real concern at a time when monetary and fiscal policy should be benefitting businesses. These businesses are likely to fall on hard times when interest rates inevitably rise, making it more difficult to service their debt.”

Signs of business distress showed 31 per cent of Northern businesses introducing pay cuts, compared with just 16 per cent in the Midlands and 20 per cent in the South.

Regional differences were also apparent in the extent of cash flow problems with 31 per cent of companies in the North experiencing difficulties, compared to 19 per cent in the Midlands and 22 per cent in the South.

Mr Walker said small businesses faced a “worrying” picture and warned of more insolvencies when monetary policy is tightened.