Companies across the region are tackling a “tsunami of problems” as they struggle to repay bounce back loans, new figures suggest.

The latest Red Flag Alert report published by business rescue and recovery group Begbies Traynor found an 8.4% rise in the number of businesses in distress in the second quarter of 2023.

Begbies Traynor’s analysis of the data shows that after two years of pandemic disruption and income loss, many businesses are battling to cope under the strain of repayment of bounce back loans, combined with the challenge of rising interest rates causing sharp rises in the cost of debt.

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The region saw an 8.4% in the number of regional businesses experiencing early or ‘significant’ distress compared with the second quarter of 2022. The figure also rose across the UK, at the slightly higher rate of 8.5%. Of the 438,702 businesses across the UK suffering from early distress in the period, just over 7,980 were in the North East.

Andrew Little, partner for Begbies Traynor in the North East, said: “Businesses in the North East, and indeed across the UK, are facing a tsunami of problems with the burden of rising interest rates leading to unmanageable debt, and material and labour costs continuing to spiral along with the impact of the conflict in Ukraine, higher energy bills and continuing inflation. Given the wider economic uncertainty, we fear that time is simply running out for many businesses and we expect a surge in company collapses with the likely failure of many ‘zombie businesses’ in the coming months.”

Of the 22 sectors in the North East monitored by Red Flag Alert, only six reported decreases in the number of companies in significant financial distress compared with a year ago – including printing and packaging, travel and tourism, telecommunications and IT, professional services, media and hotels and accommodation. Sectors suffering the biggest increases in significant distress compared to last year included utilities, which rose 75%; manufacturing, up 23.3%; leisure and culture, up 21.5%; bars and restaurants, up 18.7%; and wholesale, which was up 18.2%.

During the period, the region saw a number of company collapses, including energy consultancy Great Annual Savings, developer Quayside West Limited and leisure company Dead Vibey Leisure Limited, which operated Newcastle bar and nightclub The Lofts and The Hustle.

Meanwhile, BDO LLP’s bi-monthly Economic Engine survey of 500 mid-market businesses found that 48% of regional companies said customers cutting back on spending is their biggest concern for the future. The survey by the accountancy and business advisory firm found that rising interest rates and the cost of borrowing was a major worry for 35%, while supply chain issues also continue to cause a significant headache for 35% of North East businesses, as problems such as delayed deliveries, stock shortages and cost increases, persist in the market. More than a third (35%) are reducing their energy usage as a way of cutting costs, with 42% admitting they are tapping into Government support schemes.

Michael Stallard, partner at BDO in the North East, said: “Customer spending habits have always dictated how many regional businesses approach day-to-day operations and longer term growth. As the battle with inflation continues to impact all facets of the regional economy, North East companies are having to be laser focused on business priorities for the remainder of 2023, with reducing operational costs and retaining existing workforces at the top of the list.”