Half a million businesses in distress pre-Covid

The number of businesses experiencing significant financial distress passed the half million mark for the first time by the end of March, as the coronavirus pandemic took hold, according to research by Begbies Traynor


The firm’s Red Flag Alert data for Q1 2020 recorded 509,000 firms in trouble, the largest quarterly increase in the number of businesses in significant financial distress since the end of 2017.

Analysis suggests SMEs have been badly hit as 504,000 of the total of 509,000 are businesses with under 250 employees. Begbies Traynor points out that many have struggled to access new government support measures such as the coronavirus business interruption loan scheme (CBILS).

In addition, the data shows a 10% hike in the number of businesses in ‘critical’ distress, which is usually a precursor to insolvency.

Begbies Traynor says this figure would have been even higher, but creditors have been held back from taking court action due to the lockdown. There are now 2,289 businesses in critical distress with the most notable increases in the past quarter a 37% increase in bars and restaurants, 21% increase in real estate and property, 11% increase in construction, and 8% increase in both general retail and manufacturing.

Julie Palmer, partner at Begbies Traynor, said: ‘The coronavirus pandemic is a true “black swan” event that has decimated short term business financial performance.

‘With many SME’s yet to access government funding such as CBILS, many will simply run out of cash, particularly with the April pay run approaching and payment for furloughed staff still outstanding.

‘The Red Flag research demonstrates that many businesses were being cut close to the root before this crisis started to affect the economy and may be left with little option but to cut their losses  with the knowledge that they would never be able to pay back a loan, no matter what the terms.’

Ric Traynor, executive chairman of Begbies Traynor Group, said: ‘Consequently, we expect these numbers to be the “tip of the iceberg” and as the year progresses we expect to see the number of organisations falling into significant and critical financial distress and ultimately insolvency to materially increase.

‘With finite resources to bail out companies, the government has difficult choices to make concerning which companies to save based on which have the strongest footing to thrive long-term.’

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