The number of Midlands businesses reporting signs of distress is up on the previous quarter with almost a third admitting regularly using their maximum overdraft facility.
This is a steep rise from 16 per cent in the last quarter, according to research by insolvency trade body R3.
More than half of Midlands businesses say they are experiencing reduced sales volumes, up 16 points on the quarter.
The figures are based on 559 telephone interviews with small, medium and large business owners and financial directors between March 5 and 16 and weighted to the profile of UK businesses.
R3 Midlands chairman Matthew Hammond, a partner at PwC in the Midlands, said: “Some of the key reasons behind this considerable increase in business distress are that consumers’ disposable income is shrinking and corporate confidence is at rock bottom.
“Investors are also reluctant to take the plunge and support businesses perceived to be struggling.
“However, we have still not seen the number of corporate insolvencies we might have expected.
“This could be attributed to a number of factors, but will almost certainly have been influenced by the current shift in creditor attitudes.
“With the realisation that economic recovery is still not on the horizon, creditors – including HMRC and the banks – have been giving businesses more breathing space to pay taxes and settle debts.”
Nationally the R3 report reveals that retail businesses are among the hardest hit in the UK.
Half of retailers reported reduced sales volumes and decreased profits compared to a cross-sector average of 37 per cent and 36 per cent respectively.
When R3 members were asked to choose which sector they thought would experience the greatest number of insolvencies in 2012, half chose wholesale and retail above all other sectors.
Mr Hammond added: “The retail sector is in a state of flux. Retailers rely on customers’ purchasing power but they can be fickle.
“Eighteen million people nationally are worried about their current level of debt, as well as increases in the costs of basics such as food and heating.
“This is undoubtedly having an impact on their discretionary spending.
“Whilst the economic conditions are extremely testing for retailers, the sector is also facing major changes in its channels to market.
“As out-of-town and online shopping become increasingly popular, these R3 findings could indicate that some retailers are struggling to keep pace with these retail trends.”