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Small businesses ‘run out of rope’ as company insolvencies hit 14-year high – NimbleFins’ loan guides explain options

The number of businesses filing for insolvency has hit the highest level in 14 years as organisations "run out of rope", new figures show.

A total of 6,342 company insolvencies were recorded in the second quarter of 2023, the highest since the same period in 2009.

Small businesses have been particularly hard hit, with experts saying they accounted for 83% of cases.

Company insolvencies had been lower than usual between the start of Covid-19 and mid-2021, it's thought partly because of Government help during the pandemic.

But now as the economy struggles and inflation rises, many businesses are closing down rather than looking at business loans or other ways to support their organisation.

Nicky Fisher, president of insolvency and restructuring trade body R3, said: "More and more businesses are running out of road or rope. Directors are choosing to close down their firms while the decision is still theirs."

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The number of company insolvencies was 9% higher than Q1 in 2023 and 13% higher than the second quarter last year, the Insolvency Service said.

In addition, the number of creditors' voluntary liquidations (CVLs) hit 5,240 between April 1 and June 30 - the highest figure for a quarter since records began.

Lindsey Cooper, partner at RSM UK Restructuring Advisory, told Sky News 83% of total insolvencies relate to small businesses.

She said: "With the rise in interest rates and hikes in inflation, businesses that previously benefitted from cheap loans and ran on very small margins are now facing significant challenges especially when it comes to renewing bank facilities or refinancing."

Breathing space from personal loans

Figures also show the number of people asking for "breathing space" from their debts rose 26% to 21,323 in the second quarter of 2023 compared with the same period last year.

Breathing space is a Government initiative that gives people in debt legal protections from creditor action for up to 60 days.

Of the 21,000 applications granted, 313 of those were a mental health breathing space which gives protection during the person's whole mental health crisis treatment, plus 30 days.

However, personal insolvencies dropped 8% to 26,390 compared to the first quarter of 2023.

Individual voluntary arrangements (IVAs) made up the majority of personal insolvencies, while 27% were debt relief orders (DROs) and 7% were bankruptcies.

Read more: 0% credit cards v cheap personal loans: Which wins for cheap borrowing?

Bankruptcies have started to rise year on year.

Ms Fisher added: "The rise in bankruptcies and debt relief orders suggests that more people are unable to make almost any kind of contribution to repaying their debts this quarter, so have turned to these processes in an attempt to resolve their financial issues.

"Anyone who is worried about their business or personal finances should seek advice as soon as possible."

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Helen Barnett

Helen is a journalist, editor and copywriter with 15 years' experience writing across print and digital publications. She previously edited the Daily Express website and has won awards as a reporter. Read more here.