A report by the Eastern branch of insolvency and restructuring trade body R3 claims that over 20,000 East of England businesses say they would be unable to repay debts if interest rates were to rise by even a small amount.
The findings are indicative of a substantial increase in the number of ‘zombie’ businesses from the less than 1% of local firms as being in this situation in September 2016. The research, which is part of a long-running survey of business distress also found that 18% of East of England firms were paying just the interest on their debts, a significant rise from 13% recorded in September 2016.
Ensors Business Recovery Partner and R3 Eastern Chairman Mark Upton, says “These local figures reflect the national picture and indicate the first increase in the number of businesses worried they would be unable to cope with an interest rate rise since 2014. Firms in the eastern region have faced a challenging couple of years with the sharp fall in the pound making things difficult for importers, while a rise in the National Living Wage and the introduction of the pensions auto-enrolment have added to business costs.”
Mark also noted that companies that only pay the interest on debts does not always indicate that a business is in distress. He explained “It may be that a company is taking advantage of low rates to invest in its operations or assets – but only repaying the interest is also a common characteristic of a ‘zombie’ business. This is a business struggling to survive which is only able to continue trading due to an ultra-low cost of borrowing.