Research reveals SMEs borrow more to pay for insurance
SMEs are borrowing more to pay for insurance underlining the importance of credit to help with budgeting as premiums increase, new research from the UK’s leading insurance premium finance company, Premium Credit, shows.
Premium Credit’s Insurance Index, which monitors changes to insurance buying trends, found one in three SMEs (33%) who use credit to pay for insurance have borrowed more this year than in the previous year. The average amount borrowed was £1,600, nearly double the £8202 recorded last year and higher than the £1,1003 recorded two years ago.
However, the main reason for taking on more credit highlighted by 44% is that it is more convenient, compared with 37% who blamed higher premiums for the increase and 35% who pointed to the rising costs of materials.
The research found around half (49%) of SMEs value the ability to pay insurance monthly through finance offered by insurers or premium finance including 19% who use it for all bills. The key reason cited by two in five SMEs for valuing the ability to pay monthly is that it helps with budgeting while 1 in 3 say it improves cashflow.
That is reflected in the growing popularity of using premium finance or finance provided by insurers. Around 62% of SMEs which use credit rely on premium finance or finance from insurers, compared with the 44% recorded by last year’s index and 33% two years ago.
Use of credit cards has dropped slightly to 44% from 49% last year while 28% of SMEs in this year’s index used personal or business loans compared with 22% last year. Around a quarter (23%) of SMEs said it has been more difficult to secure credit in the past 12 months which is higher than the 10% recorded last year.
Premium Credit’s research shows the cost of not having insurance for SMEs – around 22% say they were unable to claim for damage to property or belongings in the past five years because they did not have insurance or their cover was not good enough. That compares to 15% recorded in last year’s index and 12% two years ago. Around two out of five (38%) were unable to claim for £3,000 or more.
Owen Thomas, chief sales officer, at Premium Credit commented: “SMEs are borrowing more to pay for insurance but convenience rather than the rising cost of premiums is the main reason for the increase in borrowing.
“Credit can play a role in supporting business growth by enabling firms to better manage cash flow and invest money elsewhere, with substantial numbers of firms using credit to ensure they maintain important insurance cover.
“The research demonstrates that premium finance and finance offered by insurers are playing a growing role in providing credit to SMEs to help with for the cost of insurance.”