The number of businesses paying interest only on their debts and not repaying the debt itself has tripled in the past year, according to new research by insolvency and restructuring trade body R3.
The figures show that 11 per cent of Northern businesses – equivalent to 34,000 firms – are in this position, compared to just three per cent or 10,000 businesses last year.
The latest figure is more in line with the post-recession years. However R3 says it does not necessarily indicate a big rise in “zombie businesses” – those surviving only because of low interest rates – but could suggest firms are taking advantage of record low interest rates to keep cash in the business.
Paul Barber, (pictured) Vice-Chair of R3 in the North West and a Partner at Begbies Traynor, says: “Apart from the initial shock of the EU referendum result, the business environment has been relatively benign this year.
The figures may suggest healthy companies are retaining cash, and possibly using the credit to fund their growth plans. They could also reflect the big rise in the number of start-ups, which need funds for development.”
The research shows the number of businesses struggling to pay debts when they fall due has remained at four per cent, the same as last year, although there was a small rise in the number who were having to negotiate payment terms with creditors (up from four per cent to six per cent) and those who said they would be unable to repay debts if interest rates rose (up from three per cent to five per cent).
Paul Barber added: “Businesses do need to beware of pursuing growth at the expense of profit, which is not sustainable in the long term, or of relying on borrowing.”