It sounds odd to suggest that thousands of SMEs might face financial distress due to the country’s emergence from recession, but that is the warning made in a new Begbies Traynor Red Flag Alert.
The Red Flag Report for Q2 2014 cites a total of 237,000 companies that are now in financial distress, up by over 60,000 during the past 12 months.
Some 218,000 of these are now in ‘significant’ distress – and any rise in the base rate could push these zombie businesses over the edge.
However, there is some good news, as the number facing the most severe levels of distress has actually fallen in the current climate of historically low interest rates.
Curiously, it is the recovery itself that is putting more firms under threat, with their overstretched finances unable to accommodate the costs associated with new growth.
“SMEs are more optimistic than ever about their outlook and as such they are expected to fuel job creation over the coming year,” said Begbies Traynor partner Julie Palmer.
“While this is a positive sign that SMEs are preparing for growth, without funding and careful financial planning this will only increase their business’s cost.”
She added that it is still important for the government to improve access to business finance, as this remains a critical obstacle for many SMEs surveyed.