The number of companies in serious financial crisis is growing rapidly
A growing number of businesses in the UK are at risk of going down, due to cost spirals and debt repayments, a report found.
Construction and hospitality are the most struggling sectors, according to bankruptcy firm Begbis Trainer.
Debt repayment schedules should be extended to reduce stress, it said.
The government says it has given businesses an “unprecedented assistance package” and increased flexibility in repaying Covid loans.
In the first three months of this year, business grew by 19% in the severe financial crisis compared to the beginning of 2021, Begbis Trainer reports.
Julie Palmer, a partner at the bankruptcy and restructuring specialist firm, said there would be a wave of business failure without further action to help struggling businesses.
“It’s just a case when the dam that holds it in place eventually bursts,” he said.
Begbis Trainer, which publishes regular health checks on the state of British business, says its “Red Flag Alert” study reflects two years of extraordinary financial pressure on thousands of companies. It said that of the 1,891 companies now in the critical category, their outlook was uncertain.
Although the Kovid restriction has been lifted, some companies are still feeling the effects of disruption in the supply chain and the price of power and other inputs has risen sharply.
Firms are finding it difficult to hire workers in some sectors, and wage costs have risen, including the payment of minimum wages and national insurance.
As the cost of living increases, many UK families are looking for ways to save money, putting more pressure on businesses that rely on reasonable costs such as bars and restaurants.
“Inflation … referred to as the silent thief of the economy, I think it’s actually becoming an armed robber, the real inflation is probably going much higher than that. [official figure] 7%, “said Mrs. Palmer.
There is also a “post-Brexit hangover” and the combination of these factors is “a perfect storm” of pressure on business, he said.
Begbies Traynor’s research highlights the sharp rise in County Court Judgments (CCJs), an early sign of future volatility, as they show lenders making legal claims.
The CCJ is up 157% from a year ago, the report said.
Courts were effectively closed for business to deal with lenders during the epidemic, Ms Palmer said, and the court case jam due to Covid means the current level of CCJ could be the top of the iceberg.
He added that from Saturday, landlords will be able to start making legal claims against businesses.
“We think landlords, who are very impatient lobbyists, will inflate these figures,” he said.
March’s official bankruptcy statistics also illustrate the tendency for further bankruptcy They show that voluntary liquidation by lenders, the most common way to hurt firms, has more than doubled over a year ago.
In the acute phase of the epidemic, many organizations relied on state aid. But that support is now gone as companies now face the perfect storm of rising wages, energy and borrowing costs, says Begbis Trainer.
Mrs Palmer said the government was faced with a choice: “Are they in a hurry to recover the funds transferred during the epidemic to ensure that the economy was functional in the future?” Or [do they] Find ways to control the number of failed businesses?
“After spending so much money protecting the business over the last two years, ministers don’t want to see it ruined as companies fail to pay their debts,” he said.
He said the coronavirus business intervention loan scheme would help businesses to adopt a humble or long-term approach to repaying loans.
An official spokesman said aid provided to businesses during the epidemic included VAT cuts, business rate breaks and government-backed loans worth about £ 400bn.
The spokesperson added, “We have increased the flexibility of businesses in repaying their Covid-19 loans, enabling borrowers to extend their repayment period by ten years under the Bounce Back Loan Scheme as well as apply for repayment leave”.
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