UK businesses fear debt problems if interest rates rise

ETON, ENGLAND - JUNE 10: A general view of Eton High Street, which will hold a street party to celebrate Queen Elizabeth II's 90th birthday, pictured on June 10, 2016 in Eton, England. The town of Eton neighbours Windsor, home of Windsor Castle and a royal residence of Queen Elizabeth II, and is home to Eton College where Prince William, Duke of Cambridge and Prince Harry were educated. The town is celebrating the Queen's 90th birthday, and will hold a street party on Sunday. (Photo by Jack Taylor/Getty Images)

Some 79,000 (4%) UK businesses wouldn’t be able to repay their debts if interest rates were to rise, according to new research from insolvency specialist R3.

The company’s data suggests the figure is almost four times higher than the 20,000 businesses in the same position in September 2016.

The research, part of a long-running survey of business distress by R3 and BDRC Continental, also found that 96,000 firms (5%) were just paying interest on their debts.

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Andrew Tate, spokesperson for R3, said: “This is the first increase in the number of businesses worried they would be unable to cope with an interest rate rise since 2014, and it coincides with a period of slower than expected growth and a small rise in corporate insolvency numbers.

Tate added: “Only paying the interest on debts is not necessarily a sign that a business is in distress: 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’ – a business only able to keep going because of an ultra-low cost of borrowing and with little chance of survival.

The research also found that – despite a rising number of firms unable to afford a future interest rate rise – the number of UK businesses already showing signs of serious financial distress continues to fall.

Other recent signs of distress measured by R3 include: regularly using maximum overdraft (8%); decreased sales volumes (7% of businesses); decreased profits (7%); fallen market share (6%); and having to make redundancies (2%).

A reported 20% of UK businesses are showing at least one of these signs of distress, slightly above the record low of 17% in December 2015.

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