One in twelve Scottish businesses are persistently teetering on the brink in a “zombie” state where they can do nothing more than pay the interest on their debts, says debt management company www.scottishtrustdeed.co.uk.
The insolvency trade body latest survey shows around 14,000 or 1 in 12 Scottish businesses are doing little else but trading to cover the interest on their debts, and are unlikely to be in a position to return to profitability in the future.
According to R3, a zombie business is one that has been hovering on the brink of insolvency for a long period of time without going under because they have been able to pay the interest, but not capital, on their outstanding debts. This has led to a state of almost suspended animation where they tread water but make no overall progress, and figures suggesting the retail and construction sectors are the worst affected.
Scottish R3 council member, John Hall, said: “Our survey indicates that enormous numbers of Scottish businesses are simply treading water financially, hoping for an upturn in the market to rescue them. Unfortunately, the indications are that this will not happen for some and that they may face closure in the months and years to come.”
“The danger for businesses teetering on the edge 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 they won’t be able to hang on any longer.”
The R3 report also shows that businesses in Northern Ireland and Scotland experienced a 44% fall in profits between May and July this year, while sales dropped by 40%. Around 17% reported that their market share had fallen. However Experian has reported that July saw a two year low on the number of business going insolvent, which suggests things may be looking up and that the economy is doing better than some of the official figures suggest.
Experian are not the only ones to believe that things are actually a little better in Scotland than is being shown in official figures. Policy convener for the Federation of Small Businesses in Scotland, Andy Willox, said “It is difficult to dispute that there are many Scottish businesses, and their owners, facing very difficult circumstances. But they’re hardly resigned to their fate – many are working exceptionally hard, others are introducing new services, products or ways of working.”
A spokesperson for Trust Deed Provider, Scottishtrustdeed.co.uk, said: “On the face of it, all the figures suggest that a small shift in the wrong direction well see those 1 in 12 ‘zombie’ business falling into insolvency. Equally however a shift in the right direction – the banks lifting their restricted lending criteria a little or measures to curb the late payment culture which is crippling small businesses – and those ‘zombie’ businesses will be fighting back.”
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