The latest Business Distress Index from Real Business Rescue has revealed the number of SMEs in significant distress* now stands at 620,000 an increase of 76,000 in Q4 2020, putting 2.8 million jobs under threat.

The website, set up by Begbies Traynor Group to advise business leaders in financial distress, analysed data from Red Flag Alert and discovered that since lockdown, 118,000 more SMEs have been plunged into distress – a 23% increase since Q1 2020. In the last quarter alone, there has been an increase of 14%, or 76,000 businesses in distress.

In addition to this, Real Business Rescue discovered that the number of start-up businesses (born after 2017) in significant distress soared by 21% in the last quarter due to the pandemic. There are now 131,000 of these fledgling businesses in distress – a 68% increase since the start of lockdown when there were 78,000 start-up businesses in distress.

These rapid increases in distress for such small and young companies is worrying when considering that the number of corporate insolvencies in 2019 was just 17,196.

Property, Hotels and manufacturing SMEs hard hit by coronavirus

Of the 620,000 SMEs in distress, Real Business Rescue analysis revealed that in the last quarter alone there was a 20% increase in real estate and property businesses (Q3 2020, 61,471 to Q4 2020, 73,756) putting 108,000 jobs in danger. There was also a worrying 19% increase in significantly distressed SMEs (Q3 2020, 6,148 to Q4 2020, 7,339) in the hotels sector where restrictions continue to impact, while significantly distressed SMEs also increased in support services by 16% (Q3 2020, 85,628 to Q4 2020, 99,281), manufacturing by 15% (Q3 2020, 20,289 to Q4 2020, 23,262) and travel and tourism by 14% (Q3 2020, 3,983 to Q4 2020, 4,554).

However, when it comes to job protection the order is switched. There are more than half a million (516,000) jobs held by the 99,000 support services businesses in significant distress, 349,000 people employed by 35,000 troubled health and education businesses, and 218,000 people employed by 79,000 construction SMEs.

Shaun Barton, National Online Business Operations Director at Real Business Rescue, said:

“Our latest Business Distress Index has tracked the troubles that smaller businesses find themselves in over this period. These SMEs and start-ups don’t have the resources to fall back on like the more established companies which have been able to rely on stronger cash flow to survive through this pandemic. Many will have been living from month to month or on a quarterly basis, and this is why they have been hit so hard.

“This latest data highlights that while bigger companies can thrive as the world moves towards greater investment in tech, logistics and construction, smaller organisations can still suffer as huge contracts are hoovered up by their bigger counterparts and the usually fruitful market of mid-sized contracts dries up. But this data is not just useful insight to see where businesses are being tripped up; it is useful to highlight where, who, and how small businesses need help. And it is vitally important that this help is given because without the millions of SMEs in the country, the UK will slow in its development of ideas and progress and the economy will further recess.

“These businesses need to get ahead of the game by considering restructuring action now so that when the creditors come calling, they are in a good space. We can offer help on or on the phone to talk through the options such as CVAs, administration, or Fast Track CVAs for companies that were in a good profitable position before the pandemic. Alternatively, there is a good market for investors and buyouts. The only thing that business owners have to be wary about is that these investors are looking for a good deal in a down market. It’s an option for an exit, and it could be a good one, but expectations will have to be lower than before the pandemic.”

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