South: Hotel insolvencies warning
Rises in interest rates could spark a flurry of insolvencies among the region’s hotel industry, according to a new survey.
Following calls from the Organisation for Economic Co-operation and Development (OECD) to raise interest rates to 3.5%, insolvency trade body R3 has traced the impact that rises would have on small businesses with findings showing the hotel and catering sector would be worst hit.
Nick Keitley, R3 southern regional chairman and partner with Bond Pearce in Southampton, said: “With the south having such a large number of hotels, a rise in interest rates would impact on the whole region.
“For businesses that are repaying bank loans and rely on consumer spend, an increase in interest rates would be a double blow.
“Pressure will be keenly felt among highly geared businesses and increases in either the cost of finance for working capital or to fund expansion are factors than can lead to corporate insolvency.”
The research shows that small businesses in the construction and manufacturing industries are however less likely to believe that they will become insolvent if interest rates increase.
He added: “Although increases in interest rates are likely to be gradual, we always advise any business owner who believes their company may be in financial difficulty to seek advice sooner rather than later.”
The survey conducted with 300 small businesses shows:
• 7% of small businesses believe they are likely to become insolvent if the base rate rises to between 2-3.5%
• 12% of small businesses believe they are likely to become insolvent if the base rate rises to between 3.5-4%
• 18% of small businesses believe they are likely to become insolvent if the base rate rises to between 4-5% (it was over 5% in 2007).
