SMEs still need help despite drop in businesses in financial trouble

THE number of businesses in financial trouble continued to fall over the summer as good weather helped consumer-facing industries return to form, according to new research.

Begbies Traynor’s Red Flag report showed the overall number dropped 2 per cent to 2,951 in the three months to September, on top of last quarter’s 9 per cent drop, thanks to improved performances in bars, restaurants and other core services.

However, while large companies appear to be gaining market share, late payments and difficulties accessing credit have pushed more small and medium-sized firms into the red in the professional, financial and support services sectors.

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Julie Palmer, a partner at Begbies Traynor, said the overall improvement of firms with critical financial problems risks masking a dual-track economy, with the report finding a 29 per cent rise in cases of significant distress among SMEs compared with a 16 per cent drop for larger businesses.

She said the difficulties exacerbate the appearance of so-called zombie companies, those that are underperforming but are being propped up by ultra-low interest rate loans.

“Unfortunately SMEs are bearing the brunt as endemic late payments and higher costs of funding take their toll on smaller companies’ cash flows, thus adding further fuel to the fire of the UK zombie problem,” she said.

“This represents a major step backwards in the Government’s efforts to improve the fortunes of this group and suggests more support is needed to nurse vulnerable SMEs back to health.”