800,000 Start Ups At Risk From Credit Crunch

The credit crunch is already being blamed for declines in consumer spending, growing numbers of corporate liquidations and rising cases of commercial fraud, but leading credit management agency Graydon believe the business sector, and particularly the fast growing new business community in Britain, is the most likely to be adversely affected by the economic downturn in 2008.

According to Companies House statistics, new incorporations rose steeply during 2006/2007 to a rate of 449,000 a year. This figure represents a 20% increase over the corresponding 2005/2006 period. (372,000 new incorporations).

“It is a fact” argues Martin Williams, Managing Director of Graydon UK, “that the majority of businesses go to the wall in their first two years of trading. This tells me that the credit crunch has come along at exactly the wrong time for around 800,000 new businesses, which must be under even more financial pressure than usual to survive their first two years of existence”.

Williams adds “usually during the second year after start up, companies that struggle to survive run out of initial start up money, and rely on loans from banks to continue trading. In better economic times, many banks may agree to make funds available for longer, but when credit tightens, bank managers may react in a different way- by withdrawing financial support, or in the worst circumstances, using their powers to appoint an administrator if they hold security under any existing loan or overdraft agreement. I expect this to happen much more frequently during 2008.”

by: Editor
11th Mar 2008