Exclusive: Millions of small businesses vulnerable as £672bn of business loans go unprotected
Around £672 billion of corporate borrowing by SMEs is unprotected, which could leave businesses vulnerable to any future financial shocks.
New data from Legal & General, shared exclusively with City PM this morning, shows that three in four of all small and medium size businesses in the UK are carrying some form of corporate debt, with an average borrowing of £200,000.
If 75 per cent of the 5.6m SMEs across the UK are grappling with this debt, it is estimated that around 20 per cent have protected their borrowing with appropriate insurance products.
However, around £672bn of business loans are unprotected in the SME sector today.
Moreover, 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.
Personal guarantees
Over half 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, said Robert Betts, market development manager at Legal & General.
When taking personal guarantees and other forms of credit into account the overall business protection gap is estimated to extend into the trillions.
“Most small businesses rely on a handful of decision-makers to keep things up and running, sparing little thought for what might happen if one of them was diagnosed with a serious illness, or sadly passed away,” Betts told City PM today.
“Can the business repay its financial obligations without these people? What plans do they have to ensure the business can continue?”
“The considerable business loan protection gap is a stark reminder that businesses cannot afford to ignore these questions anymore and must consider protecting their borrowing,” Betts added.