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Home » Business News, News in Brief

Midlands SMEs face growing financial distress…

Submitted by on July 21, 2014 – 7:30 am |

John Kelly - Begbies TraynorAccording to the latest Begbies Traynor Red Flag Alert research, Midlands businesses are reflecting the national trend for rising levels of ‘Significant’ financial distress, marking the third consecutive quarter of deterioration for this growing group of struggling businesses.

Year on year, ‘Significant’ financial distress in the Midlands rose by 35 per cent, as the number of firms facing problems jumped from 21,653 to 29,114. In Birmingham, there was an annual rise in ‘Significant’ financial distress levels of 25 per cent (3,153 to 3,939), whilst quarterly there was a 7 per cent increase (3,695 to 3,939).

Nationally, levels of ‘Significant’ distress across “Corporate UK” increased by more than 34 per cent over the past year from 176,677 in Q2 2013 to 237,362 in Q2 2014.

Worryingly, the research reveals that levels of ‘Significant’ financial distress have primarily been driven by smaller firms, as 94 per cent of Midlands businesses in difficulty are SMEs. The deteriorating fortunes of SMEs spells concerning news for the economy at a time when there are a number of near term challenges on the horizon for businesses, including political change, a risk averse lending environment and the prospect of interest rate rises.

The data separately revealed that levels of more severe ‘Critical’ distress in Birmingham fell by 13 per cent annually but actually rose by 7 per cent between the first and second quarters of 2014, suggesting the city is experiencing a bumpy economic recovery. Around the wider Midlands region, there has been a 19 per cent quarterly decrease in critical financial distress and an annual dip of 18 per cent.


With market commentators predicting that Bank of England Governor Mark Carney could announce a rate increase as early as November, Begbies Traynor estimates that a rise of as little as 1 per cent could result in real challenges for a material number of the c.218,000 SMEs across the UK already suffering ‘Significant’ distress, many of which are still burdened with significant debts accumulated during the recession.  These are the ones that need to take urgent specialist advice.

According to Begbies Traynor, recent positive reports that business confidence is now at a 22 year high may also be a contributing factor to the latest rise in distress levels, as SMEs overstretch themselves without financial support to try and keep pace with the wider UK recovery.

John Kelly, Regional Managing Partner at Begbies Traynor in Birmingham, said: “Despite some rising distress levels, we’re finding the SMEs around the Midlands are more optimistic than ever about their outlook and as such they are expected to fuel job creation over the coming year.   It is imperative however they keep a tight rein on costs and only expand when they are confident about increased sales.

“Access to funding is still a major issue for SMEs. Although traditional bank finance is now widely available for those firms fortunate enough to comply with mainstream lending criteria, it remains a different story for businesses in complex or challenged circumstances. Our latest Red Flag findings once again underline the critical importance for current government initiatives to increase the diversity of funding providers and to better signpost alternative business finance.

“It is crucially important that Mark Carney exercises tightrope precision in his decision on the timing of interest rates rises if he wants the UK to return to more normalised conditions, without initiating an emergency stop on its economic recovery.”

Ric Traynor, Chairman, Begbies Traynor Group, commented: “While low interest rates and creditor forbearance continue to ensure that businesses are kept off the Critical list, you just need to scratch beneath the surface to see clear signs of a twin track economy. While larger corporates have taken full advantage of the market opportunities available to them, a growing number of SMEs are overtrading and risk falling at the last hurdle.”

“The UK needs SMEs to be able to take on new orders, recruit staff and invest in growth if they are going to contribute to the broad-based economic recovery. But without adequate funding in place, this kind of investment can only be achieved by overstretching their finances, leaving them little leeway should things take a turn for the worse or if growth accelerates leading to greater working capital needs  – a risky strategy at a time of growing political and monetary policy uncertainty.”


Breaking down sectors in the Midlands, Telecoms and Information Technology, Support Services and Real Estate & Property Services have all made great strides of the past quarter, posting respective decreases in ‘Critical’ financial distress of 67 per cent, 47 per cent and 37 per cent. Other sectors showing improvements when it comes to ‘Critical’ financial distress are Manufacturing (minus 19 per cent) and Construction (minus 17 per cent).

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