Nearly 17% of small businesses at risk of insolvency

Research suggests British small businesses are in more vulnerable position than SMEs in Germany and France

Nearly 17 per cent of small and medium-sized businesses in the UK are at risk of insolvency in the next four years as financial support from the Government winds down, says research.

Euler Hermes, the trade credit insurer, has found that Britain’s small businesses are in a more vulnerable situation than their counterparts in France and Germany.

Only 7 per cent of SMEs in Germany are at risk of failure within four years, and 13 per cent in France.

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Euler Hermes investigated insolvency risk across 525,000 small businesses across Europe.

The trade credit insurer said that manufacturers and suppliers to the car industry ranked among the most vulnerable, with more than 33 per cent in the sector exposed to the risk of insolvency. About 25 per cent of those in the energy sector and 20 per cent in construction were said to be at risk.

British business failures remained low during the pandemic, thanks to unprecedented Government support, as well as measures to protect companies from insolvency, but distress is expected to rise as the economy reopens, support is withdrawn and loans need to be repaid.

>See also: Government ‘should write off’ £1.7bn of Covid loan debt

The Government underwrote nearly £75bn of emergency Covid-19 loans to small businesses and provided tens of billions of pounds of further support via the wage furlough scheme, grants and tax relief.

Ana Boata, head of macroeconomic and sector research at Euler Hermes, told the Times: “While Government support has provided a safety net for swathes of the economy, the threat of insolvency remains all too real for many SMEs. Supply chain disruption leaves many open to shortages and inflation, which will limit growth, but we also expect payment terms and the length of time it takes to get paid for orders to rise.”

Further reading

Sole traders hit hardest by Covid pandemic – research

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Tim Adler

Tim Adler is group editor of Small Business, Growth Business and Information Age. He is a former commissioning editor at the Daily Telegraph, who has written for the Financial Times, The Times and the...

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