Banks turn the screw

Nearly 4,800 UK companies went bust in the first quarter of 2008, an increase of 8.5 per cent on the same period last year, according to data from information services group Experian.

This is the highest number since the final quarter of 2006, and the second highest in a single quarter since Experian began recording the figures in 1997.

Mark Berley, an insolvency specialist at Berley Chartered Accountants, says that enquiries from businesses in severe financial trouble have doubled since the beginning of this year, as the effects of the credit squeeze have filtered down to small and medium-sized enterprises (SMEs).

‘Banks are passing on the pain, using the credit squeeze as an excuse to improve their positions,’ says Berley. ‘They are making SMEs pay for their mistakes.’

Berley adds that company directors are being faced with ‘Hobson’s choice’ by banks that demand personal guarantees from directors on existing debt.

‘I advise all directors I speak to: at all costs, try to avoid pledging your personal assets, and if you have to, only do it in respect of future borrowings,’ he continues. ‘But I find most of the people I speak to have offered personal guarantees already. They are now finding the banks are prepared to act quite ruthlessly [to recover outstanding debts].’

Experian’s research suggests that an increasing range of sectors are being affected by the credit crunch, with business failures increasing in 15 out of 34 sectors over the first quarter. Over 2007, business failures increased in just nine sectors.

The biggest increases were seen in agriculture (business failures up 109 per cent), financial services (up 36 per cent) and food retailing (up 36 per cent).

The regional breakdown suggests the East Midlands and Northern Ireland are the worst-affected areas, with business failures rising 54 and 52 per cent respectively.


Marc Barber

Marc Barber

Marc was editor of GrowthBusiness from 2006 to 2010. He specialised in writing about entrepreneurs, private equity and venture capital, mid-market M&A, small caps and high-growth businesses.

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