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The credit crunch 10 years on: How it has affected Liverpool businesses

A decade has passed since the UK slid in to the worst financial crisis is a generation. With FSB research showing that small businesses and the economy are on the up, but still fragile, we asked FSB member Stephen Berry (pictured), Insolvency Partner at Opus Restructuring LLP in Liverpool, for the view from the ground.

It’s 10 years since the start of the credit crunch and financial crisis of 2007. As someone who deals with businesses in the ‘real’ economy first-hand, how bad did it get?

As you might imagine, we saw an initial spike in the number of business casualties initially, however, given the benign economic conditions coupled with low interest rates, a rise in zombie companies (defined by the FT as ‘a company that is kept alive by lenient creditors and low interest rates even though it is too weak to invest or expand’) has occurred and therefore there has been surprising decline in the number of corporate insolvencies year-on-year since 2010.
What’s the picture like now? 

The Government indicates that all parts of the economy are growing and compared to where we were 10 years ago, it has strengthened. However, the confidence of people and businesses doesn’t entirely match as we’re not seeing as many businesses making growth decisions whilst there is still uncertainty over what Brexit will look like for the UK. An increase in personal debt is adversely influencing disposable income decisions which predominately effects the spend in the retail and leisure sectors.

What do you put the improvements (presumably!) down to?
When owner managers are confident of the economy, they take more (calculated) risks to grow the business. We are seeing some sectors showing signs of growth but access to affordable funding continues to be a problem. 

A current concern though, is that personal borrowing is rising with the adult population of the UK owing £1.537 Trillion as the end of May 2017 up from £1.489 Trillion in May 2016. This is an increase of £929.97 per UK adult which will undoubtedly have a detrimental effect on the economy. 

How has the finance and funding landscape changed – are banks lending to small businesses and are the terms more reasonable? What about the growth in alternative forms of finance (peer-to-peer lending etc)?

As Banks are recovering from the financial crisis, the Financial Conduct Authority has imposed new regulations on lending criteria that effects how they lend to UK PLC.  SME’s are finding it a challenge to access lending with acceptable terms available which hampers their growth plans. However, for any smaller business that has been turned down by a Bank, there is a scheme that was introduced by the Government - The Small Business Enterprise & Employment Act 2015 which helps the SME market to obtain finance. However, there is also appetite from the asset based lending market as well as an increase in popularity in crowdfunding.
Is there more appetite to try to turn a company around rather than close the doors? What support is out there?

Previously Directors facing financial and business pressures often decided to “throw in the towel”, close down the business and place it in liquidation. However, with confidence returning, there does appear to be a greater desire on behalf of Directors to tackle the problems they face and to attempt to work through them.

One thing we would recommend - the earlier a business engages help, the more time it has to consider the options available. The key is to deal with the problem early in the decline phase, rather than at crisis point. 

How do you see things going in the next few years? What should business owners do to prepare/grow?

Brexit is key. Once there is a degree of clarity on what Brexit will look like, business owners can then prepare for the future. However, there is one big overriding concern which must be factored as you come out of any recession - ensure that the pitfalls of overtrading are avoided. What a business owner must recognise is that with increasing sales, the company needs sufficient cash flow to accommodate the improvement in trading without creating a funding gap that could cause its demise. 

It’s about planning and good forecasting so that you can be proactive in managing the future hurdles e.g. funding for growth.

Stephen recently took part in a Radio Four interview on the subject to mark 10 years of the start of the credit crunch, after FSB’s national press office was contacted by the BBC for regional views.