By Max Clarke

The level of risk associated with doing business in the UK is continuing to diminish, according to new research by Graydon UK, the commercial credit referencing agency.

An analysis of 1.2 million active Limited Liability companies on Graydon’s own proprietary database has found that on 1 January 2011, 11 per cent of companies were classed as a high credit risk, compared with 12 per cent on 1 January 2010 and 17 per cent in 2009, when the UK’s economy reached its lowest recessionary point.

At the same time, the proportion of Low and Low to Normal Risk companies has increased. On 1 January 2011 Low and Low to Normal Risk firms made up 40 per cent of companies, compared to 39 per cent on 1 January 2010, and 36 per cent of companies on 1 January 2009.

Martin Williams, Managing Director, Graydon UK, commented; “A continuing decline in high risk companies should signpost a return to normal bank lending conditions this year, and a significant easing in terms of the trade credit insurance sector.”

Other commentators have, however, been less optimistic about the forecast availability of credit in 2011, with Investec reporting that 75% of entrepreneurs are anticipating increased difficulty in securing funds, compared to 64% last year; while the lending from the government’s Enterprise Finance Guarantee Scheme has declined by up to 56%.

“That’s got to be good news for thousands of credit starved SMEs, not to mention the UK economy in general.
The Government has described recent talks with bank bosses on the subject of lending to small businesses as constructive, which also suggests that finance may be easier to come by for SMEs this year.”

“Despite business confidence being shaken by the rise in VAT, government spending cuts and the fall in lending to businesses, there are reasons to be optimistic in what promises to be a watershed year for the UK economy.”

According to Graydon’s research, this trend in the fall of the number of companies with high risk ratings shadows the changes in the government’s quarterly GDP statistics over the same period.

According to Martin Williams, when the economic conditions are improving the number of negative attributes on companies’ credit scores typically fall, for example, there will be fewer County Court Judgments. Companies’ finances also tend to improve as they focus harder on efficiency during and coming out of recession, and also because of the increase in demand for their goods and services.

Martin Williams added; “During 2009, the country’s economy gradually improved from the depth of the recession witnessed in the first quarter, to end in positive GDP growth territory by close of that year. Within this period we saw a 32 per cent decline in High Risk company ratings, from 223,000 to 152,000.”

“Over the last year, we’ve seen some consolidation and improvement in credit risk but more in line with the slow path to recovery revealed in the official 2010 GDP statistics.”