One in five UK companies now has negative net assets. Here is what a lender reads into it.

The short answer. In our proprietary analysis of filed company accounts, 20.3% of UK companies had negative net assets at their 2025 year end, up from 17.0% in 2021. Among companies with five or more employees the share rose from 10.8% to 14.7%. Negative net assets is a balance-sheet condition, not a failure rate: only about 1 in 200 companies enters insolvency each year. But it is the first thing a lender sees, so you need to know why yours are negative and be able to explain it.

What the filed accounts show

I compared the latest accounts filed for years ending in 2021 with those for years ending in 2025. Every measure of the buffer between a company and its creditors has got thinner.

Hospitality is the worst sector: 31.6% of hospitality companies had negative net assets in 2025, up 6.1 points. Health was among the strongest at 14.3%. By region, London was highest at 23.1% and Northern Ireland lowest at 13.3%. Companies under ten years old (about 22%) were more likely to have negative net assets than those over ten years old (16.5%).

Two points stand out. First, employers got worse faster than the average: the share for companies with five or more staff rose by 3.9 points, against 3.3 for all companies. Second, the two problems now travel together. In 2025, 88% of companies with negative net assets also had a current ratio below 1, against about 76% in 2021. A weak balance sheet is now usually a cash problem as well.

Why it happened

The causes are well documented, and most of them hit companies with staff hardest.

• Wages. The National Living Wage rose 6.7% in April 2025 and a further 4.1% to £12.71 in April 2026.
• Employer National Insurance. 15% on earnings above £5,000 from April 2025.
• Interest rates. Bank Rate went back up to 4% on 5 November 2026, the first rise since August 2023.
• Bounce Back Loans. 1.56 million loans worth £47.4bn were made before the scheme closed in March 2021. Much of that money was still sitting in bank accounts at 2021 year ends, which flatters the 2021 cash figure. The loans are now being repaid, and where the cash was spent the debt is still on the balance sheet.
• New companies. 815,277 companies were incorporated in the year to March 2026. New companies start with little cash, which pulls the median down.

What other indicators say

Every independent source I checked points the same way, although none measures exactly the same thing.

• Begbies Traynor's Red Flag Alert counted a record 738,144 UK businesses in "significant" financial distress in Q3 2026, the highest since it began in 2004.
• UK Finance reports SMEs were using 51.4% of their agreed overdraft limits in June 2026, the highest since March 2020.
• The Insolvency Service puts the company insolvency rate at 49.9 per 10,000 in the 12 months to September 2026, about 1 in 200, slightly lower than a year earlier.
• In hospitality the 2025 insolvency rate was 267.6 per 10,000 businesses, against 115.9 for all businesses.

That is why the headlines are quiet. Formal insolvencies are flat, but the buffers underneath have halved. A dead season or two late payers now does more damage, and faster, than it did four years ago.

What a lender reads into it

Negative net assets means the shareholders' cushion has gone: if the company stopped, its creditors would take the loss. A lender's first question is why.

• A clear, one-off reason is a conversation. A write-off, a loss in one bad year that has since been replaced, or a large director's loan shown as a creditor.
• Repeated trading losses are usually a decline. The lender is being asked to fund the losses.
• Director's loans can be added back. Many lenders look at tangible net assets and add back director's loans that are formally subordinated, usually by a deed of postponement. A company with negative net assets because the owner lent it money is a very different risk from one that owes HMRC.
• The current ratio is read against the sector. A pub with daily cash takings can run below 1 without anyone worrying. A contractor waiting 60 days to be paid cannot.

What to do if your net assets are negative

1. Know the cause, in figures. Write one paragraph that explains it before a lender asks.
2. Deal with the director's loan. If you have lent the company money, a deed of postponement can turn a weakness into a strength in the lender's eyes.
3. Show trading since the year end. Filed accounts are 9 to 21 months old. Current management accounts show where you are now.
4. Build a business cash flow forecast. Month by month for 12 to 36 months, with a 13-week view if cash is tight, showing the low point and the route back.

How these figures were produced

The figures come from my own proprietary business analysis of company accounts filed electronically, taking the latest accounts filed for each company for each year-end year. Medians are used rather than averages. Companies that have stopped filing are not included, so the figures describe businesses still trading. A small number of late accounts for 2025 year ends are still arriving, so the 2025 figures may move slightly. Contains public sector information licensed under the Open Government Licence v3.0. Source: Companies House accounts data.