Latest News Headlines
Commercial Credit News
|139,000 UK businesses only paying the interest on their debt|
|Wednesday, 14 December 2016|
139,000 businesses in the UK are only paying the interest on their debt and not repaying the debt itself, according to new research by insolvency and restructuring trade body R3.
The number of businesses in this position – equivalent to 8% of all UK businesses – has returned to levels more in line with previous years after falling to 69,000 last year (4%).
Only paying off the interest on debt is often a sign of a ‘zombie business’ – a business only surviving because of low interest rates – but R3 says the new figures do not necessarily indicate a return of the ‘zombie’ phenomenon.
Andrew Tate, president of R3, says: "Apart from the initial shock of the EU referendum result, the business environment has so far been relatively benign over the course of 2016. It’s more likely that otherwise healthy businesses are taking advantage of record low interest rates to keep cash in their business."
"Other indicators of acute distress are all down such as having to negotiate payment terms with creditors and being unable to repay debts if there was small increase in interest rates. This suggests that businesses just paying the interest off aren’t as lifeless as they may have been in previous years."
According to the R3/BDRC research, 33,000 businesses are struggling to pay debts when they fall due. This represents a decrease from the same time last year when 55,000 were in that position; there were a peak of 134,000 businesses in this position in May 2013.
Andrew Tate continues: "While there is little immediate cost for otherwise healthy businesses borrowing more at the moment, the danger is that problems are being stored up for later on. Businesses may run into trouble when interest rates start to rise again or if fresh borrowing is needed to cope with a downturn in fortunes, especially if businesses are already borrowing at their limit.”
"It’s all very well just paying off the interest on debts at the moment, but businesses in this position also need to make sure they have enough cash to hand to make any balloon payments on their debts when they are due."
"Businesses should tread carefully and plan ahead to make sure short-term needs don’t jeopardise long-term survival."
Forums International Ltd
Attendance at your first meeting is free of charge, and please quote reference 'CCR2016' to receive the special 10% discount off of your first annual subscription.
Find out more here.
The latest edition of CCR Magazine, the leading editorial publication in the UK credit industry, is out.
CCR is the premier magazine for consumer and credit professionals. It provides an independent voice to the industry, breaking major news stories and running in-depth features.
As a magazine, it works with and campaigns on behalf of the credit industry to promote its importance as a centre of potential profit and business development to the wider business world.
Providing information and analysis for thousands of senior credit professionals worldwide, every quarter.
GTS Media Ltd
81 Cambridge Road
Registered in England No: 05483197