Unprotected corporate borrowing by SMEs is projected to be worth £672 billion, leaving them vulnerable to future financial crises, according to Legal & General.
According to L&G’s annual ‘state of the nation’ research, the UK economy is worth £672 billion. The data found that 75 per cent of small and medium-sized enterprises in the UK have some sort of corporate debt, with an average borrowing of £200,000.
But this current estimate excludes SME owners who have injected funds into their company through personal loans, overdrafts, or credit cards. Over half of UK SME business owners, or 54 per cent, have also issued personal guarantees to secure their loans, putting their personal financial well-being and that of their families at risk for the sake of their company. When personal guarantees and other forms of credit are factored in, the overall protection gap for businesses is estimated to be in the trillions.
Legal and General market development manager Robert Betts says: “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.”