£672bn of SME borrowing is unprotected: Legal & General

LEGAL & GENERAL estimates a business protection gap of £672bn for SMEs — with an overall gap estimated to extend into the trillions.

Following their annual State of the Nation research, 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 percent of the UK’s SMEs are carrying some form of corporate debt, with an average borrowing of £200,000. With 75 percent of Britain’s 5.6 million SMEs grappling with this, it is estimated that around 20 percent have protected their borrowing with appropriate insurance products. Some £672bn in business loans is unprotected.

This estimate does not include SME owners who have supported their businesses by injecting cash via personal loans, overdraft facilities, or credit cards. Over half (54 percent) of UK SME business owners have also given personal guarantees to secure their borrowing, risking their own financial wellbeing. Taking personal guarantees and other forms of credit into account extends this into the trillions.

“Not only is the business loan protection gap endangering the future prospects of SMEs,” says market development manager Robert Betts, “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.”