Conister Finance comments on huge rise in zombie companies being kept afloat but now desperately hanging on
Commenting on the huge rise in zombie companies being kept afloat but now desperately hanging on, Douglas Grant, director of Conister Finance & Leasing, said:
“We are facing a significant double dip recession that could last well into late 2021 and the economy will be hurt by both SMEs closing and mass redundancies for a significant part of the workforce. SMEs are not just the lifeblood of the economy, it is where innovation and creativity happens. Since 2008, alternative lenders have risen in prominence, working alongside larger more traditional clearing banks, offering a funnel of vital liquidity through tailored and flexible lending solutions to SMEs. Today there are significant amounts of private capital waiting to be invested in resilient SMEs and the market share of clearing banks has fallen significantly in a far more diversified lending sector. In the last 12 years, banks have also become much better capitalised than during the Global Financial Crisis. Previously businesses could service debt from remaining cash flows with little or no capital for investment which resulted in a zombie status for many UK SME borrowers. It appears this dangerous trend is re-emerging and according to The City UK, it is estimated that businesses may build up £100 billion of debt by next March which they would be unable to repay with 780,000 SMEs in danger of insolvency.
“Since the epidemic took hold, the UK Government has been quick to back sectors that are resilient to recessions and market volatility, providing financial security and protection through initiatives such as the bounce-back loans scheme. It is imperative that SMEs have a tripartite level of sustainable support from Government, alternative and traditional lenders working together to identify and protect the more resilient sectors such as infrastructure, technology and renewables, ensuring their existence guaranteed. This is where alternative lenders that understand the characteristics of specialist SMEs and with the flexibility they offer, empower their staff to make judgement calls on capital requirements often in the infancy stage of lending, can provide the additional support and natural lending progression alongside the larger clearing banks. Larger clearing banks will not be able to keep the UK SME sector alive by themselves.”
Kindly shared by Conister Finance & Leasing
Main article photo courtesy of Pixabay