Euler Hermes, a trade credit insurer, has warned that Britain is expected to experience one of the sharpest increases in insolvencies of any major economy in 2018, second only to China.
Weakness in the pound and pressures from the European Union will push the level of failures up by 8 per cent. While the continued late payment culture of the UK, coupled with the rise in interest rates, are also weakening many businesses across the country.
Milo Bogaerts CEO of Euler Hermes UK and Ireland, says: “The rise in insolvencies has the potential to start a domino effect of overdue or non-payment, which can impact large companies and smaller suppliers throughout supply chains.
“At the same time, two possible base rate increases this year may progressively translate into higher interest costs for companies and households.”
Adding to this, other research indicates that £355 million will be added to interest rate payments for SMEs in the first year if interest rates rise by a further 0.25 per cent. The findings show that only £24 billion of lending to SMEs in the UK – just 16 per cent of the total – is on a fixed rate basis while £128 billion of lending is on a floating rate.
“When interest rates rise, many SMEs are going to get burned by a jump in their interest costs. Businesses will then become reluctant to commit to transactions if they feel that their variable financing costs are going to rise. But what choice do they have, when fixed rate loans from banks are nearly non-existent?”
The Bank of England’s Monetary Policy Committee next meets on 22 March.
There are many underlying reasons why companies may fall into administration or insolvency. If you have any concerns about your business then it is beneficial to fully understand the possibilities for restructuring as early as possible to allow for appropriate planning.
Through our partner businesses, BM Structured Finance and BM Advisory, we are able to help with sourcing and restructuring debt finance for SME businesses, as well as assisting with resolving issues which can impact on business performance and success, and finding innovative solutions for businesses and individuals in distress.