Legal & General estimates that £672bn of corporate borrowing by SMEs is unprotected, leaving them vulnerable to any future financial shocks.
The data revealed that 75% of the UK’s small and medium size businesses are carrying some form of corporate debt, with an average borrowing of £200,000.
If 75% of the 5.6 million SMEs across the UK are grappling with this debt, it is estimated that around 20% have protected their borrowing with appropriate insurance products, Legal & General estimates that £672bn of business loans are unprotected in the SME sector today.
SMEs will need to dig deep to turn this corner
However, this current estimated figure does not include SME owners who have supported their businesses by injecting cash via personal loans, overdraft facilities, or credit cards.
Over half (54%) of UK SME business owners have also given personal guarantees to secure their borrowing, risking the financial wellbeing of themselves and their families for the sake of their enterprise.
When taking personal guarantees and other forms of credit into account the overall business protection gap is estimated to extend into the trillions.
Robert Betts, market development manager, Legal and General, said: “Not only is the business loan protection gap endangering the future prospects of SMEs, but it’s time that business owners considered the ‘bigger picture’ of the financial risks they and their business could face in the event of the death or serious illness of themselves or key employees.
“When SMEs struggle to stay in control of their finances, it can have a knock-on effect on their ability to pay employees and suppliers, cover operating costs and pursue growth opportunities. The cocktail of multiple pressures combines to threaten their day-to-day livelihoods.
“Speaking with an adviser can help mitigate the wider effects of debt as they can help identify and implement the right policy to protect a person’s business against any future financial shocks without compromising the owner’s personal finances.”
