Some fairly alarming statistics have emerged from a recent study by Legal & General into the level of corporate debt sitting within the UK’s crucial SME sector.
It’s not the actual level of debt that’s at issue here, after all by common consensus it’s the SME sector that will do most to pull the country out of the economic mire. In this respect those businesses need adequate funding.
Contingency, what contingency?
The issue, and it’s an eye watering one, is that £223 billion of this debt currently sits unprotected by any kind of insurance; a situation that leaves a lot of businesses at serious risk should an unforeseen event trigger a request for immediate repayment.
Companies lucky enough to have all of their borrowing secured against business assets (along with the very lucky few with unsecured loans) may be sitting reasonably comfortably however, of those surveyed that have some form of corporate debt ,over a third of them rely on personal guarantees to secure borrowing.
Nothing lasts forever
These guarantees are usually given by the business owners/directors and so it is not difficult to imagine the stance of the bank if one of them falls terminally or critically ill or in the worst case scenario actually dies.
And it’s not just personal guarantees that need to be considered. Amongst the limited companies taking part in the study the highest debt was by way of directors loans. Interestingly a quarter of those companies were blissfully unaware that these loans are repayable on death.
Ask an expert
Getting the right advice on corporate debt cover is key if a business is to avoid a potentially serious blow to its finances. And don’t be fooled into thinking that if your friendly bank manager doesn’t suggest it then it isn’t an important requirement.
The very same survey shows that two thirds of the businesses taking part heard no mention of any sort of life cover from the bank when arranging loans. Of the few that did, a mention was all it was with no subsequent referral to an advisor.
Get smart and get it covered; if there is one thing that will bring your business to an immediate halt its lack of cashflow.