Company insolvency fears to ease in coming year

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The risk of insolvency for UK businesses have eased throughout the year, despite recent data showing liquidations hit a four-year high in May

Just under one in three (32%) of UK businesses surveyed acknowledged there was a risk that they would become insolvent in the next 12 months, according to research by Evelyn Partners.

However, while a high proportion, this is down considerably from September 2022, when 47% of businesses believed there was a risk of insolvency.

Corporate insolvencies are at a four-year high according to the latest government data. However, with prospects of insolvencies easing, the research indicates that these figures might have reached their peak.

The research, which surveyed 500 business owners with revenues of £5m upwards, indicated that business confidence has remained largely stable over the past nine months.

More than 77% were confident that they would survive an upcoming recession, a similar level to September 2022, which reported 78%.

This stable outlook comes despite the challenges that have arisen in the intervening period, including inflation, ongoing interest rate rises, and higher taxes.

Last year, more than half (52%) expected to embark on a round of redundancies, which has since dropped to just one in three (36%).

Almost one in two (48%) also thought it likely that they would have to withdraw from a key market in September 2022, again dropping to just one in three (32%) at present.

Despite this stable outlook, financing and the cost of funding remain significant risks and challenges for UK businesses.

Instability across the banking sector sparked by the US regional banking crisis has had a direct impact on UK businesses. Less than one in five (18%) said they have been negatively impacted by suppressed lender appetite in the wake of the collapse of Silicon Valley Bank.

In the past six months, almost three in ten (29%) have faced difficulty sourcing funding, with 9% of businesses stating it had been very difficult.

With forecasts indicating rates could peak at 5.75% later this year and bond yields at their highest levels since 2008, two in five (40%) believe they will continue to face funding challenges.

Claire Burden, partner at Evelyn Partners, said: ‘Businesses have weathered an exceptionally challenging winter, in which the cost of funding has soared, consumer confidence has taken a sizeable hit and energy prices have rocketed. Emerging out of these challenging months, it is encouraging that business confidence remains stable, and survival prospects have improved as we head into the summer.

‘However, businesses are not out of the woods just yet. Although funding remains in ample supply, banking instability and interest rate rises have led to a buyers’ market. For borrowers and management teams, this has resulted in more cumbersome financing processes.

‘Businesses looking to re-finance or source additional funding should therefore start the process early and enlist the support of specialist advisors to help identify funding options and providers best aligned to their business needs.’

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