Three in four small and medium-sized enterprises (SMEs) are carrying some level of debt in the wake of the coronavirus pandemic, a major study has revealed.
The research, published by insurer Legal and General, is among the first to highlight the financial impact of Covid-19 on British businesses.
According to the report, the proportion of small businesses carrying “at least some level of external borrowing” has increased from just half (51 per cent) in 2019 to three quarters (75 per cent) in June 2021 – the latest data available.
In addition, more than one in two (54 per cent) directors or business owners have used personal guarantees, such as their home, to secure their company’s borrowing, leaving them at risk of personal financial distress and even bankruptcy if they were to default on the loan.
The decision to personally secure debt, however, is often a regrettable one, with four in 10 business owners (40 per cent) “wishing they had done more in advance”, such as insuring their business loan or putting protection in place in the event of the loss of key people.
Across all participants, just one third of borrowers had opted for protection insurance to secure their business debt.
Commenting on the findings, Robert Betts, Market Development Manager at Legal and General, said: “The past two years have been especially tough for small businesses and spotlighted the need for a comprehensive back-up plan.
“Businesses can no longer rely on government-backed schemes and easily accessible borrowing to protect against an unforeseen crisis.”
He added: “Our research has revealed that business owners are ready to discuss protection insurance solutions that could help them negate the financial impact of the death or long-term illness in their business.”
Despite rising levels of debt, over half of SMEs involved in the study say they have a “positive financial outlook” for 2022.
The findings form part of Legal and General’s annual State of the Nation report, conducted in June 2021.
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