Low insolvency rates are disguising the true health of medium-sized businesses in the UK, ThinCats has warned.
The alternative business lender cited official data which said 0.61 per cent of 425,000 mid-sized firms became insolvent last year, equating to around 2,600 companies.
This compares with a peak of 1.86 per cent (around 5,400) during the 2009 financial crisis and is lower than both the pre-Covid level of 0.76 per cent (around 1,950) in 2019.
Government support measures such as business interruption loans, VAT deferrals and business rate holidays have helped many firms survive the pandemic so far.
However, while the overall insolvency rate fell between 2019 and 2020, data from the Insolvency Service reveals the largest value of pay outs for 10 years in missing wages and benefits at companies that went bankrupt last year, ThinCats said.
The alternative lender’s analysis also found that large businesses were harder hit by the pandemic, with a greater rise in insolvencies.
It found that companies at the larger end of the mid-sized range, with £10m or more in gross assets, saw an increase in insolvency rates in 2020 while the remainder trended downwards in line with the overall rate.
Large businesses reliant on high footfall experienced the sharpest rise in insolvency rates, going up from 0.76 per cent in 2019 to 1.52 per cent in 2020.
“While the impact of Covid on businesses that rely on customer footfall wasn’t a surprise, we hadn’t expected large companies to be proportionally hardest hit,” said Ravi Anand, managing director at ThinCats.
“It may be that some of the larger multi-chain businesses have not responded as quickly to longer-term threats such as online sales.
“As a lender, it’s important to understand the challenges facing companies especially as the economy begins to open up and government support schemes come to an end.
There are a lot of businesses, particularly in the services and tech sector, that have done really well. In contrast, there are also many businesses that are sound but will take a bit of time to rebuild working capital as the economy opens up, while businesses that didn’t adapt, even before Covid, have been left exposed.”