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Interest rate rise will be a tough time for 1 in 5

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The Bank of England has maintained the 0.5% interest rate for some time to allow the economy to recover post recession. Despite the economic recovery in the past year not all businesses are safe just yet. It is widely anticipated that a rise in interest rates is imminent and it is reported that as many as 1 in 5 will struggle if a one percentage rise occurs before the end of 2015.

R3 conducted a survey of 500 UK businesses and found that 6% would experience ‘serious financial difficulty’ and 16% said they would expect ‘some difficulty’. However the majority of businesses reported that they would be ‘unaffected’ by the prospect of a rise and 7% expected that the rise would have a positive impact on their business.

R3 President, Giles Frampton, said: “Economic recovery is just as tough a time for some businesses to negotiate as a recession, if not tougher”.

“Normally insolvencies peak after a recession, but we haven’t seen that this time around. Record low interest rates and high levels of creditor forbearance have helped keep lots of businesses going”

“The good news is that businesses that might have expected to struggle after 2008 have been given extra time to put their finances in order. However there is still a big chunk of businesses that will struggle once ‘normal’ recovery conditions, like interest rates, return”.

It is expected that the interest rate rise will have the biggest effect on those businesses that are already only paying the interest on their debts, research conducted by R3 show that 6% of businesses in the UK were doing so; however this figure was down from 9% in 2012.

If you are concerned about the financial position of your business, specialist advice should be sought at the earliest opportunity. Our specialist Insolvency Solicitors can provide advice and assistance through such difficult times.

By Nicola Whittle, associate solicitor in the commercial litigation department