The insolvency industry index has revealed that small businesses are experiencing higher levels of distress compared to larger counterparts.

The Association of Business Recovery Professionals, R3, released its latest Business Distress Index, showing that 37% of small businesses are experiencing decreased profits, compared to 19% of medium-sized businesses and just 7% of large businesses.

When it came to cashflow, the index revealed that up to 24% of small businesses regularly used their maximum overdraft limits compared to 6% of medium-sized businesses, while no large businesses report to be doing so.

R3 said that across all distress signs, higher numbers of small businesses are suffering with the exception of making redundancies - 17% of large businesses have had to make redundancies compared to 12% of small businesses.

R3 president Lee Manning said that small businesses are likely to be struggling because they typically have less access to capital.

'Investing in a small business is arguably less attractive to investors compared to a venture into a larger business due to the monitoring requirements of a smaller loan being the same as a significant investment in a large business and therefore the resources required are often disproportionate to the anticipated returns.

'Small businesses are often more vulnerable to any change in circumstances, such as a loss of a major customer or increased pressure from their creditors. Small businesses find it difficult to diversify quickly enough to change their business in response to such events and typically do not have access to adequate financial resources to fund restructure. Large businesses are more likely to have the means to restructure, such as relocating or cut head count for example. For this reason, it is not surprising that the one area large businesses are experiencing higher levels of distress is in making redundancies- when trading conditions become difficult larger businesses have the ability to reduce head count to weather the storm,' said Manning.

R3's research also showed that business distress levels remained elevated throughout 2012 - a third (33%) of businesses are experiencing decreased profits; one in five (20%) are regularly using their maximum overdraft facility; nearly a third (31%) saw a decrease in sales volume and one in 10 (10%) had to make redundancies.