SME insolvency rates expected to rise in 2023
More small businesses are likely to become insolvent in 2023 due to tough economic challenges and the end of government Covid-related support, analysis by ThinCats has found.
However, in its ‘Mid-Sized SMEs Insolvency Report 2022’ the alternative lender says it “expected current high demand for funding to continue in support of businesses seeking to grow organically or through acquisition”. The study analyses insolvency rates across mid-sized UK businesses from 2007-2022.
The report shows that insolvency rates rose by 0.39 per cent in 2021 to 0.65 per cent in 2022, below pre-pandemic levels for all sectors except consumer services.
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It also found that government support was very effective in protecting firms with assets of less than £10m from insolvency, although larger companies more immune to insolvency than smaller ones.
While acknowledging the rise insolvency, it praised the sector for its resilience.
“Unfortunately, mid-sized businesses were also hit by a dangerous cocktail of rising inflation and input costs during 2022 so it is a credit to their ongoing resilience and adaptability that insolvency rates remained below their pre-pandemic levels,” the report said. “The robustness of the sector is further demonstrated by the addition of 38,000 businesses to the overall mid-sized universe during 2022.
“Historically, mid-sized businesses are more resilient than smaller ones and we expect this to become increasingly relevant if economic conditions weaken from here, although recent Bank of England forecasts suggest any downturn could be shallower and shorter than predicted a few months ago.
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“Looking forward, although we believe insolvency rates for mid-sized businesses will continue to rise during 2023, perhaps above pre-pandemic levels in some sectors, many businesses are thriving in the current environment and will need additional funding to accelerate their growth trajectories. We are not seeing significant increases in stress levels from either our existing borrowers or in our new business pipeline which remains strong.”
The study also found that the number of mid-sized businesses in total continues to rise growing by 7.7 per cent in 2022, which is above the 10-year average of 3.8 per cent from 2010 to 2019 – a period between the financial crisis and the pandemic.
“This report sheds light on the continued resilience of more than half-a-million mid-sized SMEs that make a critical contribution to the UK economy, said ThinCats chief executive Amany Attia. “We expected an element of ‘catch up’ in 2022 insolvencies following the easing of pandemic support measures, which had helped sustain many businesses during 2020 and 2021.”
Read more: ThinCats hails resilience of mid-sized SMEs during Covid