Small and medium-sized enterprises (SMEs) in the UK are exposed to serious levels of financial risk, with £223 billion worth of corporate debt currently unprotected, according to new research.

According to a study commissioned by Legal & General as part of its Every Business Matters campaign with professional advice search website, 51 per cent of businesses have some form of corporate debt, averaging £144,980.

More than a third (36 per cent) of these small businesses relied on the personal guarantees of business owners to secure bank loans, overdrafts and other corporate debt yet more than half (51 per cent) had no cover in place to repay the debt should the business owner die or become terminally or critically ill.

Bank overdrafts were the most common form of corporate debt, held by 21 per cent of UK businesses questioned. In limited companies, the highest debt was through director loan accounts (30 per cent), and a quarter (25%) were not aware that these need to be repaid on death.

The survey also asked respondents with bank debt whether their bank had recommended taking out life cover. Almost two thirds (64 per cent) said life cover was never mentioned by their bank, while a further 14 per cent said it was mentioned but they were never referred to an adviser.

Clare Harrop, head of specialist protection at Legal & General said: “Taking on corporate debt is an inescapable reality for most businesses owners looking to sustain and grow their businesses.

“Corporate debt protection cover is essential for any business with debt, to ensure the business is safeguarded against the financial risks associated with death or critical illness of a business owner and not left with a serious debt to settle. Basic protection could save a business, not to mention to a business owner’s personal wealth.”

Karen Barrett, chief executive at added: “Business owners are putting themselves in an incredibly vulnerable financial position by disregarding this cover.”

The research findings were based on a survey of 500 respondents.

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