Gen Z businesses cause credit confusion

Companies formed in the 21st century – commonly referred to as Generation Z businesses – are causing credit control confusion for lenders due to their typical lack of tangible assets, reports Experian.

The credit risk management insight provider explains that historically, start-up companies have often borrowed against tangible assets like manufacturing machinery to cover the other costs of setting up in business.

Gen Z businesses cause credit confusion

But these days, many new ‘companies’ are simply skilled individuals setting up in business to provide online services or to contribute in a similar way to the 21st century’s knowledge economy.

As a result, lenders are left with little to accept as collateral against defaults on repayments – and the past near-decade of economic turbulence has seen the company failure rate soar too.

In 2014, the business closure rate hit 10.4%, up from 10.2% in 2013, and significantly higher than the 9.2% average for the decade up to 2009.

Max Firth, managing director for Experian Business Information Services UK&I, said: “The UK’s business landscape has changed dramatically in the 21st century.

“Start-ups are created using knowledge, skills and the internet, often with just a laptop, mobile phone and a small or home office.”

In terms of online or ‘web-tech’ businesses, since 2000 the total number in the UK has risen 237%, accounting for 8.5% of all start-ups in the 21st century.

Nearly nine out of ten (88%) of these have less than £10,000 in fixed assets, and 29% of all assets held by those firms are in the form of cash.

Almost half (44%) are either home-based businesses, or work out of a small office – and this lack of assets and short credit history, combined with a probable lack of resources to withstand cash flow shocks, combines to represent a considerable credit risk for suppliers of all kinds, and especially for these businesses’ lenders.

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