Rate rise could be fatal for struggling firms, warns Begbies

BEGBIES Traynor is warning a rate rise could hit small and medium-sized businesses after its latest Red Flag report recorded a sharp rise in firms in difficulty.

The Red Flag report identifies and tracks the numbers of businesses facing financial problems and classifies them as either significant – defined as a court action pending or poor or out-of-date accounts – or critical – those with County Court Judgments totalling £5,000 or more, a winding-up petition or being in a voluntary arrangement.

It said nationally levels of significant distress increased by more than 34% over the past year from 176,677 in Q2 2013 to 237,362 in Q2 2014. In contrast, those facing critical problems fell by 9% over the past 12 months to 2,745. It was a similar picture in the North West where there were 22,565 firms with signiciant problems, up 32%. But the critical figure feel by 8% to 332.

Begbies, which has its headquarters in Manchester, said that a rate rise of 1% “could result in dire straits” for the 218,000 SMEs already suffering significant distress, “many of which are still burdened with significant debts accumulated during the recession”.

The firm said the increase could be down to companies overstretching themselves to try and keep pace with the wider UK recovery.

Partner Gary Lee said: “Despite rising distress levels, SMEs are more optimistic than ever about their outlook and as such they are expected to fuel job creation over the coming year. While this is a positive sign that SMEs are preparing for growth, without funding and careful financial planning this will only increase their business’ cost base; one of the principal causes of severe critical distress within the SME community.”