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Small Businesses Experience Higher Levels of Distress
Small businesses are experiencing significantly higher levels of distress compared to larger businesses according to R3’s latest business distress index.
Across all the distress signals higher numbers of small businesses are struggling with the expectation of making redundancies. 17% of larger businesses have had to make redundancies compared to 12% of small businesses.
The R3 president comments “small businesses are likely to be struggling because they typically have less access to capital. Investing in a small business is arguably less attractive to investors compared to a venture into a larger business due to the monitoring requirements of a small loan being the same of a significant investment in a large business. Therefore, the resources required are often disproportionate to the anticipated returns”.
Tim Corfield further comments “there is a problem for small companies providing security to bankers and investors. Not only have balance sheets become weaker but also the personal position of directors has deteriorated largely due to a decrease in house values in recent years. Government initiatives have helped but too many small companies remain seriously under capitalised with nowhere to turn to when the going gets tough”.
Business distress levels have remained higher throughout 2012 according to R3. Their findings show;
One third of businesses are experiencing decreased profits
20% of businesses are regularly using their maximum overdraft facility
one third of businesses have seen a reduction in sales and
one in ten businesses has had to make redundancies.