One in five businesses ‘will struggle if interest rates rise’

More than 20% of businesses would be put under considerable financial strain if interest rates were to rise by one percentage point, according to a recent survey.

The Business Distress Index was conducted by insolvency trade body R3, which interviewed decision makers at 500 businesses. The findings showed that 16% of businesses would be in “some difficulty” if interest rates were to rise.

The report also revealed that 6% of businesses would be in “serious difficulty”.

R3 president Giles Frampton said: “The good news is that some businesses that might have expected to struggle after 2008 have been given extra time to put their finances in order. However, there is still a big chunk of businesses that will struggle once ‘normal’ recovery conditions, like rising interest rates, return.

“A one percentage point rise in interest rates is at the upper limit of what we might expect in the eighteen months, but policymakers should bear in mind that many businesses still feel they’re close to the edge of their comfort zone.”

According to the survey, 70% of businesses would remain unaffected if interest rates were to rise. A rise in interest rates would be beneficial to 7% of businesses.

Mr Frampton added: “An interest rate rise will have the biggest impact on ‘zombie businesses’ – those that are already only paying the interest on their debts – and personal finances.”

The figures emphasise the need for businesses to keep a tight rein on credit control and debt collection. With so many firms still struggling, it is essential to ensure invoices are paid on time to maintain a healthy cash flow.

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