New R3 Figures Released

The number of businesses which believe that banks are being unsupportive has increased, according to insolvency trade body R3’s Business Distress Index. The quarterly report, which looks at the financial position of GB businesses, reveals that one in four (24%) businesses strongly disagree with banks being supportive, up 7 per cent on September 2010 figures.
 
The Index also shows that one in four (24%) businesses are concerned about their debts. Over the last quarter, worry has intensified amongst businesses who are concerned about their debt, and small businesses seem particularly vulnerable. Forty-three percent of businesses concerned about their debts are now worried about bank loans and finance debt; this compares with just 24 per cent in September 2010 – a 19 per cent increase.

Andrew Walker, chair of R3 in Yorkshire and partner at Irwin Mitchell, comments: “The increase in the number of businesses who no longer feel that banks are being supportive indicates that a growing proportion of the business community are either struggling to service their existing debts or finding it hard to acquire further lines of credit.

“As we have seen in previous recessions, once the economy begins to show signs of recovery creditors tend to make a more concerted effort to pursue those who are indebted to them and tighten up their lending facilities. However, we are still in the early stages of recovery and it takes time for this to translate into tangible relief for businesses. For the many businesses that used all their reserves to survive the recession, supportive creditors are more important than ever.”

According to the index businesses perceive trade creditors to be the most supportive creditors, but less so then they were six months ago. HMRC was perceived to be the most supportive creditor last quarter - they are now second, with the banks being seen as the least supportive creditor.

Mr Walker continued: “Insolvency Practitioners working with distressed businesses are seeing an increase in the number of Time to Pay applications being rejected. This may well explain why HMRC is no longer seen as the most supportive creditor.”

Across the sectors, retail and distribution businesses are most likely to believe creditors to be supportive; conversely, the report indicates that 83 per cent of retail and distribution companies are experiencing at least one sign of distress. This compares to 77 per cent of manufacturing firms and 65 per cent of service firms. 

Mr Walker said: “The fact that more retail and distribution firms are struggling while at the same time stating that creditors are being supportive, suggests these businesses have had to call on these creditors. With VAT rises being absorbed by many retailers and evidence that consumers are tightening their purse strings, it is not surprising that the retail sector, in particular, is showing more signs of distress.

“Despite the worrying minority, the report reveals signs of distress on the whole have decreased this quarter, which can only be a good thing.”