Fewer Midland businesses are experiencing signs of distress compared to earlier this year, but a significant number continue to feel the pressure, according to new research.
R3’s Business Distress Index, which monitors the responses of regional respondents on a number of growth indicators, highlights that only 13 per cent of Midlands businesses admit to regularly using their maximum overdraft facility, a steep fall from 31 per cent in the last quarter.
There has also been a reduction of 18 points, from 51 per cent to 33 per cent, in the number of Midlands businesses experiencing reduced sales volumes.
Conversely, the R3 research shows that more than one in ten Midlands businesses are at risk of becoming insolvent, saying they are only able to pay the interest on their debts, but not reduce the debt itself.
However, new data shows personal insolvencies have fallen to a four-year low.
R3 Midlands chairman Matthew Hammond, a partner at PwC in the Midlands, said: “Whie some local businesses appear to be weathering recent economic challenges, there is still a vast number ‘running on empty’.
“The danger for these businesses is that any change of circumstances, such as a rise in interest rates, the loss of a major customer or suppliers upping their prices, will mean that they will not be able to survive.”
According to the R3 national research, the construction sector has the largest proportion of businesses (16 per cent) only able to pay the interest on their debts. This equates to 37,000 businesses nationwide.
Matthew Hammond continued: “With many capital expenditure projects coming to an end, cuts in public sector budgets and work from the Olympics coming to a close, we can expect to see some of these businesses fail. Construction may well be the next big casualty from this recession.”
Meanwhile, Insolvency Service figures have shown that personal insolvencies have plummeted.
There were 27,390 personal insolvencies in England and Wales in the second quarter of 2012, a decrease of 10.2 per cent on the same period a year ago.