Why did scary stories about zombie companies fail to turn into reality?

Remember the zombies? A couple of years back, the banks were accused of massaging their business failure figures by allowing indebted businesses to delay repaying their loans – the suggestion was that while these “zombie businesses” had no future, the banks were reluctant to force their closure because they feared further attacks for failing to support small and medium-sized enterprises.

Happily, data from R3, the insolvency industry trade body, show there has been a dramatic reduction in the number of zombie businesses still out there – and not because more have gone under. R3 defines these companies as those that are only able to pay the interest on their debts, rather than any of the capital owed: while there were 154,000 businesses in this position in August 2014, the number today is just 69,000. That’s the lowest total since R3 began such research in 2012.

R3’s figures also show that only 97,000 businesses are so strapped for cash that they’re having to negotiate payment terms with their creditors – down from 135,000 last year.

These trends are mirrored in official figures showing that fewer businesses are failing. The Office of National Statistics says that 9.6 per cent of businesses shut last year, down from 9.7 per cent in 2013, and the lowest figure since 2008, before the financial crisis.

So were the zombie claims overblown? Well, certainly this horror film has turned out to be far less frightening than many expected; on the other hand, it’s fair to say many businesses have got lucky.

The single most significant explanation for the unexpected recovery of all those zombies is that interest rates have remained at rock-bottom levels for far longer than anyone predicted. Every time economists have begun to think that the Bank of England might finally be on the verge of raising rates, a new slew of negative data or fresh shocks such as the Chinese slowdown have changed the game. Most analysts do not now expect the first interest rate rise before the autumn of next year.

Artificially low borrowing rates – as well as falling energy and commodity prices, and flat inflation generally – have given businesses a breathing space in which to recover that they would never have been granted in normal times. The banks’ forbearance policies may have been introduced for selfish reasons, but they have enabled many zombies to come back from the dead.

However, this is not a scary movie that will end well for everyone. According to R3, there are still some 77,000 companies out there that would renege on their debts were interest rates to rise. Time is running out for these businesses to get themselves into a more resilient position. That there are still 69,000 businesses only in a position to pay debt interest also remains worrying.

Nor are rate rises the only threat to the remaining zombies. Higher costs next year will come in a number of guises. The new national living wage will have an impact on many firms, as will the extension of the auto-enrolment pension system to cover more small businesses. At the same time, the banks’ forbearance policies will not last forever, particularly now they feel under less pressure to avoid confrontation.

Business can and do fail even in the most supportive economic conditions – such is the nature of enterprise. However, the remaining overhang of zombie businesses means that once interest rates and borrowing costs do begin to rise, we are likely to see failure rates spike back upwards. Those zombies which have had a reprieve should count themselves lucky, for many more will not be so fortunate.

Britain’s biggest banks are charging small businesses thousands of pounds in hidden fees to make international money transfers, a study claims. Money Mover, one of a growing number of online currency exchanges that aim to disrupt the big banks, said that charges hidden in banks’ exchange rates and market spreads made it almost impossible for customers to work out what they were paying to move money across borders.

Money Mover said Barclays was the worst offender, with total charges of £2,776 for a small business looking to move £75,000 to another European Union country. Lloyds would charge £2,047 for the same transaction, the study revealed. At the cheapest bank in the study, Santander, charges totalled just £1,187 – well under half the cost of transferring the money through Barclays.

“When it comes to international payments, the major banks are overcharging and underserving their SME customers,” said Hamish Anderson, chief executive of Money Mover. “The UK’s banks are collectively failing to give SMEs the knowledge, transparency and visibility which they need to make an intelligent and informed decision.”

Five days and counting until Small Business Saturday, the now annual initiative to encourage people to support smaller enterprises – not only retailers, but independent firms of any type.

Michelle Ovens, campaign director of Small Business Saturday, is urging those businesses that have not yet planned how to take advantage of the project to do so. “The campaign plays a valuable role in focusing the minds of consumers and business people on what small businesses in any sector or line of business can offer in terms of range of products and services and levels of customer service,” she said. Research after last year’s event found that 16.5 million people supported a small business on the day.

“I started the company in 2003. My background was in poultry farming and then selling equipment to poultry farmers. We’d had crises such as BSE and bird flu, and in all the concern about cross-contamination, I saw an opportunity for a business specialising in farm animal incineration equipment.

“From the start I dreamt this would be an export business – the idea of selling to other countries really thrilled me. I set up quite an elaborate website by teaching myself how to build internet pages, and our first order came from Norfolk Island in the Pacific ocean. I realised that if I could sell there, I could sell anywhere.

“We expanded into medical waste incineration, and our breakthrough came when we got an order from the American military for facilities in Iraq. I think they thought we were a much bigger business than we were – not least because of that website – but by doing a good job for them we went from pretending to be a global player in the industry to actually becoming one. They recommended us to all sorts of people, and we built some strong relationships, including with people at the United Nations.

“Originally, I thought this might be a part-time endeavour, and that I’d need a proper job too. It was a shock when we turned over £350,000 in our first year, and this year we’re on target for sales of around £7.5m. We sell in 150 countries, 95 per cent of sales come from exports, and we’ve even won a Queen’s Award for exporting.”