Wave of insolvencies predicted next year
There could be a wave of delayed insolvencies next year, as businesses face repayments of government support and battle macro challenges such as rising inflation.
Funding Xchange’s FXE Lending Monitor showed there was a material increase in small- and medium-sized enterprise (SME) insolvencies since the end of 2021, following the historically low rates seen during the pandemic.
While company insolvencies in 2021 were still 21 per cent lower than pre-pandemic levels, there was an 18 per cent increase in insolvencies from the third to fourth quarter last year.
Read more: Iwoca launches cash advance product on Funding Xchange platform
The monitor said during the last quarter of 2021, the withdrawal of government support was starting to expose businesses that were never viable or that continue to be overly reliant on ‘pre-Covid’ economic models such as commuters, and this trend will continue to accelerate this year.
The research said that uncertainty for businesses and lenders will remain a key concern this year with macro challenges, such as Brexit, rising inflation and the war in Ukraine.
Read more: Funding Xchange urges lenders to adapt to support the recovery
Read more: Funding Xchange launches platform to aid digital lending
“For lenders, understanding how businesses are responding and trading through these new uncertainties is critical,” said Katrin Herrling (pictured) co-founder and chief executive of Funding Xchange.
“Forward thinking lenders are increasingly using digital tools to proactively support businesses – standing by businesses with additional funding or adjusted repayment terms that leverage an understanding of businesses’ actual trading performance.
“Lenders who fail to adapt to dynamic data driven triggers across their portfolios, risk being too slow in reacting to sector and business disruption within their overall lending portfolios.
“This may leave them overly exposed if the trend in insolvency rates reported in the latest Funding Xchange Lending Monitor continues in 2022.”