Coronavirus Pushes Number of Financially Distressed Companies Over the Half-million Mark

The number of businesses in significant financial distress now stands at 509,000 – the highest number measured by the Red Flag Alert research.

• The number of businesses in significant distress now stands at 509,000 – the highest number measured by the Red Flag Alert research
• The impact of the Coronavirus lockdown has seen the largest quarterly increase since the end of 2017 – over 15,000 more businesses are in significant distress (3%) since Q4 2019
• This record figure is only likely to be the tip of the iceberg, as full COVID-19 impact will build through Q2
• The number of critically distressed companies jumps 10% in the last quarter

The latest report from Red Flag Alert has shown that large numbers of businesses are in significant financial distress, the data for Q1 2020 reveals that by the end of March the overall figure is now over half a million standing at 509,000.

In three months another 15,000 businesses have been pushed into significant financial distress by factors including the coronavirus pandemic. The data also shows that of the 509,000 businesses in distress 504,000 are SMEs (under 250 employees) which shows that smaller businesses are those most at risk. This rise comes despite the Government support measures, including the Coronavirus Business Interruption Loan Scheme which many businesses have found hard to access.

The number of businesses now in critical distress, the stage which usually comes before insolvency, is of even more concern. This group has seen a rise of 10% in the last quarter, unfortunately this could actually be higher as creditors have been reluctant from taking court action during the lockdown. This may change once the lockdown has lifted.

There are also now 2,289 businesses classed as in critical distress with the biggest rises coming from the bars and restaurants, real estate, construction, retail, and manufacturing sectors.

Ben Westoby, Senior Client Manager at Forbes Burton said:

“Like with the health of the world population at present, the recent Covid-19 outbreak is presenting similar life-threatening risks to the business sector.

The speed and ferocity in which the pandemic has hit the UK and countries across the globe is unprecedented and we are sadly far too early on in the cycle of events to be able to establish the full facts or indeed forecast an outcome.

Early data is suggesting that businesses that were already weak and financially vulnerable are likely to be hit hardest first, and where smaller companies are unable to freely access the help on offer, trouble is soon to follow.

However, to assume that those with financial predispositions are the only susceptible sector is perhaps a little naive. Like with humans, Covid-19 could well prove indiscriminate in the business world.

For those companies offered a temporary reprieve by the furlough scheme and other financial rescue packages, difficulties could well be encountered further down the line when the added debt burden must be repaid, and the life support is removed.”

Rick Smith, Managing Director of Forbes Burton commented:

“I hope the measures put in place by the Government start to make an impact soon because as the data shows it has yet to be felt.

The businesses that have plenty of reserves and that were in a good financial position before the pandemic will likely be able to last longer without the injections from the government but those that were in difficulty, or showing signs of it, before hand are really going to struggle.

This crisis has hit all businesses and it is crucial to the UK and its economy that the damage is as limited as possible. However, I think there is still more bad news to come.”