The number of small and medium enterprises (SMEs) using credit to fund insurance has risen in the face of increasing business costs, research from Premium Credit has revealed.
Premium Credit’s Insurance Index, which monitors insurance buying and how it is financed, found that 52% of firms used credit to pay for insurance, compared with 50% last year.
Premium increases were a major reason for more SMEs using credit – 42% of SMEs said their insurance costs had risen.
Around a quarter (24%) of those firms had increased their excess as a result of higher insurance costs in the past two years, while 17% had cancelled one or more policies.
That was substantially higher than the 10% of SMEs that increased excesses on one or more policies, and the 9% that had cancelled cover as a result of insurance cost rises when Premium Credit reported last year.
Half (50%) blamed higher energy bills for having to borrow more, while 39% said costs of materials had increased and 36% said higher pay for staff meant more borrowing.
Around a third (34%) attributed increased borrowing to higher premiums.
A fifth (20%) of SMEs questioned were borrowing more than a year ago, while 37% were borrowing the same amount and 21% were borrowing less.
That was lower than the 24% who were borrowing more last year, when 35% were borrowing the same amount and 23% were borrowing less.
Nearly six out of 10 (59%) had increased borrowing to pay for insurance by £1,000 a year or more, with 13% saying the amount of credit they used increased by £5,000 or more.
Keeping up repayments was an issue, with 13% saying their firm defaulted on repayments in the past year, and 12% worrying their firm might miss payments in the year ahead.
In terms of the credit being used, around 41% relied on credit cards, while 33% were using premium finance or finance provided by insurers.
Around 20% used personal or business loans and 9% borrowed from friends or family.
Premium Credit’s research also showed the cost of not having insurance for SMEs – around one in eight (12%) were unable to claim for damage to property or belongings in the past five years.
Owen Thomas (pictured), chief sales officer at Premium Credit, said: “SMEs are facing rising costs across the board with energy bills, the rising cost of materials and pay rises for staff piling on the financial pressure along with rising insurance premiums.
“Credit is playing a bigger role with more firms turning to borrowing to help ensure they can fund insurance which can be vital to the continuing success of their businesses.”
He continued: “That said, it is worrying that firms are cutting back on cover by either cancelling policies or increasing excesses.
“Our existing support for vulnerable customers is tried and tested, and we are reviewing what additional support is appropriate during this time of uncertainty.”
