More than 200,000 SMEs suffering from 'significant' financial distress

Almost a quarter-of-a-million UK SMEs still have to deal with significant financial distress, despite the improving economic climate, according to a new report.
 
The new Q1 2014 Red Flag Alert by Begbies Traynor, suggests that many SMEs are in danger of being left behind as the national economic recovery accelerates, due to limited access to funding, new risk of over-trading and increased competition in the marketplace.
 
The study highlights a 22 per cent year-on-year increase in the number of small firms dealing with ‘significant’ financial distress. The data provides a stark contrast with the fortunes of larger companies who have experienced a 14 per cent decline in financial distress levels over the same period.
 
According to the report, SMEs now account for 92 per cent – or 207,505 - of the 225,549 UK businesses said to be experiencing ‘significant’ financial issues compared with 169,800 at the end of Q1 2013.
 
Julie Palmer, partner at Begbies Traynor Group, said: “Larger firms across the economy who have easy access to bank finance and years of experience on their side, have been able to take full advantage of the economic resurgence through measures such as extensive discounting, capacity expansion and increased marketing.

“However, as the recent Government consultation into SME financing shows, smaller businesses are far too often coming up against a brick wall when trying to secure vital funding for growth.”
 
SMEs in consumer facing sectors have fared worst in the last 12 months, while the number of general retailers in ‘significant’ financial difficulty increased by 16 per cent year-on-year to 13,130 – 97 per cent of which are classed as small firms.
 
Ms Palmer adds that information gaps and working capital shortages are affecting SMEs the most, with an upward trend in small business distress anticipated in 2014 unless something is done.
 
“As the Red Flag analysis has identified in previous quarters, increasing order intake driven by the rebounding economy actually exacerbates this problem, as businesses run into working capital shortages caused by overtrading.
 
“The information gap between the banks and small businesses means that many SMEs are unaware of how to access alternative financing such as peer group lending and venture capital. Unless this is addressed soon we expect this upwards trend in SME distress to continue through 2014.”

Last updated: 30th April 2014