The support offered by the government in light of the pandemic has further deepened the divide between those companies who have prospered and those who have and are facing worries over their futures.
In the former, are eCommerce businesses who have in the main flourished, these include digital communications and logistics given the enforced need for people to remain at home. Regretfully though there are some businesses who will never recover.
No-one can argue that the schemes implemented by the Government were of their time, but what can those businesses who took out COVID loans who are now facing repayments in a time of limited or no trading? They are now laden with debt that is not convertible to equity.
The risk is not that these companies will collapse, but that they will be left in a zombified state, only just able to cover their debts but unable to invest in growth for their future at a time when it is needed.
The start of the pandemic saw UK small businesses with little in the way of spare cash as few small companies had the reserves needed. Brexit also impacted with extra red tape and increasing issues with employment at a time when they least could cope.
What is the problem with Zombie companies?
If a business can afford payments on debts surely that is not an issue? Unfortunately for an economic recovery, Zombie companies do have an impact which is to weaken economic growth.
It has been suggested that Zombie companies have kept the UK employment strong, however due to the reduced prospects of increasing wages, after companies having to deal with historic debts, the productivity per worker is actually much lower. It might also be the case that some employees, with serious talent, are simply propping up zombie companies. With real opportunities working with growth companies, these people may even be able to produce something more innovative.
It could also be thought that this lack of productivity leads to less tax income, which could lead to a return to austerity measures – the last thing needed when recovering from a pandemic.
How can a Zombie company seek fresh funding?
The zombies don’t need to wander in the wastelands forever. There are some options for funding, but they may be more limited. It is likely that a business with historic debts is not going to achieve bank funding, however the following options are available:
- Invoice based financing;
- Peer to Peer lending;
- Directors injecting capital;
- Refinancing of assets.
It may be however, that these avenues have been explored, and if that is the case, the time may have come to seek more specialist advice.
How can I tell if I have a Zombie company?
If your business is only just managing to keep on top of loan payments, a raise in interest rates could feel as if the rug has been pulled from beneath you, but there are some options. Sometimes stopping plodding onward and channeling energies into a positive venture can release stress. There are options available and the team at Middlebrooks can help.
These options are not limited to, but could include the following:
- Creditors Voluntary Liquidation
- Company Voluntary Arrangements
- Time to pay agreements
If your company or business is struggling or you are worried about repayments to government support packages or other forms of historic debt please don’t hesitate to get in touch to book your free initial consultation with one of our experts.
Our team at Middlebrooks want to guide you through this phase to be at the centre of your companies positive future.