Lack of credit for small businesses set to swell insolvencies

The release of the Q2 Insolvency figures next week is expected to confirm the financial stress being faced by the UK’s small traders and self-employed. 

DEMSA member Atlantic Financial Management is continuing to see a sharp rise in the number of company directors and owners in serious financial problems, owing in part to the fact they have used their personal credit cards to support their business.  

The news will come on the bank of this week’s Credit Conditions Survey from the Bank of England which showed that lending to UK businesses fell in the three months to May and access to bank lending to smaller firms was variable.  

Kevin Still, Atlantic Director , said:

“The number of business owners and company directors contacting Atlantic’s debt advisors for help has risen noticeably since the beginning of the year.  When you look at the conditions they are facing, it is not surprising. 

"Small businesses are the hardest hit by late payment, access to loans and credit is still very difficult and many have seen their overdraft facilities withdrawn.  It’s not uncommon for the personal finances of small business owners and directors to be inextricably linked with their business and the natural inclination will be to deepen these ties using personal loans and credit to keep the business afloat.

“Indeed we find in most debt cases involving business owners and company directors, personal credit cards have been used to fund the business creating a spiral of debt, with one credit card being used to pay off another often with interest rate charges rising each month.  This can have long term consequences for the individuals concerned and could seriously limit their access to financial products and services.

“Until loans and access to capital for small businesses start to ease, this dire situation shows no signs of improving.  For now, the key is to recognise when debt problems are escalating and to start taking action to get back in control. 

"This is where a DEMSA accredited debt solutions provider such as Atlantic Financial Management can really help, offering specialist expertise to small business owners to help them get back in the black, with access to business recovery specialists should this also be a requirement of a holistic debt solution.”