It would be pretty unfair to say that so called “zombie” firms are “springing up” – rather, they’re just unfortunate victims of the current economic slowdown, and sadly it seems like for up to a third of them there is little to no chance of recovery.
These zombie firms are, for the most part, an inevitable result of the current low interest rates that the UK is experiencing. The term is applied to those businesses that are not making any money, rather just surviving and barely managing to pay the interest payments on their loans. The problem goes deeper still, as households as well as businesses are currently suffering from “zombification” – people who have taken out an interest only mortgage and don’t have any hope of ever actually owning their own home. According to The Zombie Economy author Mark Thomas: “a zombie company is one which is generating just about enough cash to service its debt, so the bank is not obliged to pull the plug on the loan…the company can limp along, it can survive, but it hasn’t got enough money to invest.”
With almost 50,000 of these companies set to go bust, and suggestions that there could be three times that number currently just managing to stay afloat, things are looking grim for the economic recovery. Hundreds of thousands of jobs are dependent on these firms, but unfortunately the UK economy could rely on the banks cutting ties with them.
A spokesperson for Make It Cheaper, suppliers of business electricity suggested that there might be hope for some of the business owners, saying:
“There’s no firm in the UK that would welcome the description “zombie company” but clearly there are many who are only just managing to make interest payments on borrowing, leaving them teetering at the brink of insolvency. Of course, in these circumstances there is very little money left over to help the business to grow and give them the opportunity to start eating into the debt they owe.
“Debt restructuring may help, but we urge such firms to scrutinise all their business costs in an effort to breathe new life into their enterprise. Energy, business rates, telecoms, insurance – all of these overheads can potentially be affected through positive action. Reducing these and other costs could help fuel growth and prove to be the difference between sinking and swimming when interest rates rise – and Make It Cheaper offers a free, impartial service that can help companies achieve this.”