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.
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.