Thousands of care home residents face uncertainty as one third of businesses risk collapse under a mountain of debt 1,449 care home businesses are at high risk of going under Southern Cross, the largest operator, went bust in 2011 700 companies have liabilities worth more than their assets One in three care home businesses is at risk of going bust due to "off-the-scale" levels of borrowing, according to research published today. An examination of the accounts of nearly 5,000 companies, responsible for 20,000 care homes across the UK, will ring alarm bells following the collapse of Southern Cross. Formerly the largest operator in the sector, Southern Cross went under in 2011 when it was unable to pay a £250million rent bill, bringing misery and anxiety to more than 30,000 elderly residents and their families. At risk: Borrowing at thousands of care home operators in Britain is 'off the scale' The report, compiled by Company Watch - a specialist in assessing the financial strength of firms - suggests that hundreds of smaller operators are at similar risk. Of the firms it surveyed, 1,449 were placed in its "Warning Area" after being considered "financially vulnerable" and at high risk of going under. The research also found that almost 700 care home companies are "zombie" businesses, with liabilities worth more than their assets. Their combined negative net worth came in at £217million. The investigation found that the average care home has "unusually high" gearing levels at 82 per cent. Gearing measures debt as a proportion of a company's net assets. Nick Hood, an insolvency specialist who conducted the research, said he decided to investigate the finances of the industry in the wake of the Southern Cross collapse. "I wanted to see whether it was an exceptional case of corporate vanity and too much borrowing, or whether it was typical of the entire sector," he said. He said the high level of debt in the sector, which is dominated by small companies running one or two care homes, will put many firms at risk when interest rates rise. "The aspect I find most worrying is the gearing figure of 82 per cent," he said. That is off the scale in terms of normal accounting conventions. Most companies would not be happy with a gearing level of above 60 to 65 per cent. The worrying thing is that we are five years into a regime with an exceptionally low level of interest rates. What is going to happen to this sector when, not if, there is an increase in interest rates? Vulnerable: 85-year-old Dorothy Urwin was a resident at a Southern Cross Care Home and had to move The report assessed companies using a points system with a maximum score of 100. It found that 1,449 care home businesses had a health rating of 25 points or less, putting them in the "Warning Area," which experience suggests gives them a one in four chance of needing a financial rescue. Mr Hood said many homes have run into dire financial straits after being hit by a "triple whammy." "They are overborrowed, they lack income because there has been pressure on local authority budgets, which means they cannot increase the fees they charge, and regulation has increased their costs," he said. The profitability of care homes is being relentlessly squeezed and this is something the Government has to face up to. Either we believe as a society in providing care for the elderly or we don't. He said that on the positive side, although "an exceptional number of care homes are financially vulnerable" the banks that have lent the money "will do anything to avoid the potential negative publicity" from calling in the loans. Ros Altmann, a leading campaigner for the elderly and former government adviser on retirement, said the problem of debt was "rife" across the whole care sector. "It is deeply worrying that the most vulnerable members of our society may be being cared for by companies that are themselves financially vulnerable," she said. The consequences of failure in this sector go far beyond finance. Under plans unveiled earlier this year, the Care Quality Commission is to start making checks on the finances of care homes.