Commercial lenders urged to take closer look at borrowers’ financial health
Commercial lenders are being urged to look for subtle signs of distress among their borrowers, amid rising voluntary business insolvencies.
FXE Technologies, the technology arm of small- and medium-sized enterprise finance aggregator Funding Xchange, noted a rise in firms suddenly closing, in a trend that echoes the ‘jingle mail’ phenomenon of the past housing market crash. Homeowners, unable to bear the burden of negative equity, would return their house keys to mortgage companies, often without any prior missed payments.
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“We are seeing a rise in businesses that are abruptly closing their doors and halting payments on finance arrangements, often without significant warning signs,” said Katrin Herrling, chief executive of FXE Technologies. “The contemporary version of ‘jingle mail’ doesn’t involve house keys, but rather a JCB left locked in the yard.”
Herrling’s comments follow data from the Insolvency Service, released on 15 August, which showed twice the level of voluntary insolvencies compared to pre-Covid times.
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“Business owners maybe simply exhausted from weathering the storms of Brexit, Covid, Ukraine, and soaring inflation,” she said. “We can also see from our data that the ‘Covid Cash Pile’ is for many businesses turning into a mountain of liabilities that must be repaid.”
Read more: Third of businesses use loans to fund reinvestment plans
