If you’re only paying the interest on your business debts, and not repaying any of the actual debt itself, you are operating what is known as a ‘zombie business.’
You are not alone. More than 10% of UK companies are only paying the interest on their company debts, according to new research by R3 (the trade body for the UK’s insolvency, restructuring, advisory and turnaround professionals).
This means these businesses are only surviving because of the low interest rates.
R3’s research also showed that in the UK:
- 16% of businesses are negotiating terms with their creditors
- 12% of businesses are struggling to pay debts on time
- 8% of businesses would struggle to repay their debts if interest rates increased, even by a small amount.
Some zombie businesses may be able to get themselves out of the situation – by finding investment to increase their cash flow or restructuring the business to make it profitable again.
However, what happen if interest rates do rise? (…which they will…the question is: when?)
The current interest rate is at an unusually low level of 0.75% – with the lowest rate ever being 0.25% in August 2016. However, the average rate between 1971 and 2018 was 7.55% – with it reaching an all-time high of 17% in November 1979.
Just imagine the impact of those kinds of interest rates on businesses today!
We don’t expect interest rates to go up to the heights of 17%, but we do expect them to be going up. So, directors do need to make sure their companies are prepared for this.
If you are operating a zombie company and are looking for professional advice, Clarke Bell can help you.
Cash flow problems can often be fixed with some financial restructuring, and we’ve helped many companies with this in the past. However, if this can’t be achieved there are other avenues to consider.
If you find yourself in the situation where your company needs to be liquidated, many company directors prefer to take control of the situation by using a procedure called a Creditors’ Voluntary Liquidation (CVL).
At Clarke Bell, we can provide you with free, no obligation, advice to help you find the best course of action for your business.
For more information, contact us on 0161 907 4044.