800,000 Start-Up Companies At Risk From Credit Crunch

Wed, 12 Mar 2008

Leading credit management agency Graydon has claimed the UK business sector is most likely to feel the effects of this year’s economy woes.

The company said the credit crunch, which has already caused declines in consumer spending, a rise in the number of corporate liquidations and growing cases of commercial fraud, has began to take its toll on Britain’s fast growing start-up business community, with 800,000 start-ups now at risk.

According to Companies House statistics, the number of new incorporations rose considerably during 2006/2007 to a rate of 449,000 a year - a 20 per cent increase on the corresponding 2005/2006 period.

Martin Williams, Managing Director of Graydon UK, argued: "It is a fact 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 said that start-up companies that run out of initial start up money in their second year "rely on loans from banks to continue trading" .

He added: "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."

"This may be 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."
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