Fall in insolvencies 'a blip'
Article Date: Aug 14 2007The number of companies going into administration fell to 3,032 in the second quarter of this year, down 2.1 per cent on the previous quarter, and 4.2 per cent on the same period last year, according to Government figures. But Clive Lewis, head of SME issues at the Institute of Chartered Accountants in England and Wales, says the improvement may be ‘a blip’.
‘On the face of it, the figures show a slight improvement, which is always welcome,’ Lewis tells GrowthBusiness.co.uk. ‘But unfortunately, I think it’s unlikely to continue. Primarily that’s because of interest rate rises, and the knock-on effect of banks and finance providers becoming more risk averse.’
Lewis adds that growing businesses which are funded by equities or by loans secured against their owners’ homes might be in for a particularly rough ride, because of the effect higher interest rates may have on shares and house prices. He also suspects the full impact of rate rises on consumer spending has not yet been felt.
‘It does take a while for increases in interest rates to feed through - perhaps about 18 months,’ says Lewis. ‘Rising interest rates cause some businesses to cut costs, which they might do by reducing staff numbers, or squeezing their suppliers by taking longer to pay bills.
‘There is a general tightening taking place in business, which will trickle through to small businesses over time. They are at the end of the food chain, so they will take longer to feel it - but there is nowhere they can pass it on to.’
Lewis concludes that businesses with healthy bank balances should be able to weather the storm.
