Small businesses are struggling to pay for critical insurance and leaving themselves underinsured in key areas, in particular cybersecurity. How can they better manage the costs and ensure that they have the cover they need?

New data from Premium Credit shows that six out of 10 SMEs rely on credit to pay for their insurance, mostly in the form of credit cards and insurance finance. Others have used government funding and loans from family and friends.

Notably, 50% of the firms surveyed said the decision to use credit was based on the impact on COVID-19, while almost a third attributed the move to rising insurance premiums. Key types of insurance bought with credit are vehicle insurance, property insurance, cyber insurance and key man insurance.

Interestingly, the wide use of credit in this way suggests that small businesses are finding it difficult to prioritise some insurance premiums and see affording the cover as a challenge. Given the headwinds that the sector is facing, from supply-chain disruption to rising energy prices, such a position is hardly surprising.

Why cyber insurance cover remains low in the SME sector

At the same time, input from Allianz Commercial and GlobalData shows that underinsurance is continuing issue in the small business sector. The level of cyber-security insurance is a particular problem. While firms are increasingly buying this type of insurance – thanks to the increase in homeworking and media reports about cyber-attacks – the number of firms with the cover remains modest (at less than a third according to GlobalData).

As to why this level remains low, Allianz Commercial suggests two main factors: the cost involved and a lack of understanding of the dangers of cyber-attacks. The cost of such an attack can be significant, in terms of rescuing data and repairing damage to systems and reputation. And while headline cases usually involved large corporations, smaller firms are more vulnerable because their protection is often weaker.

So, how can small businesses afford the insurance cover they need and put stable, sustainable payment plans in place? Alternative finance can help these firms safeguard cashflow and achieve these goals.

Affording insurance and how alternative finance can help

With regard to alternative finance, in the wake of prolonged caution from traditional lenders, which is an issue that has returned during the pandemic, services such as invoice finance, asset finance and peer-to-peer lending, are proving a vital source of capital for small businesses, both for maintaining cashflow and for essential investment.

These facilities, which offer a more easily accessible and personalised approach to lending, are helping small businesses survive and target recovery and regrowth.

Furthermore, alternative lending is playing a prominent role in the government’s headline emergency support scheme, the Recovery Loan Scheme (open now until the end of June 2022). Invoice finance and asset finance between £1,000 and £10 million per business are available under the initiative. This profile is helping cement the reputation of alternative finance in the business sector.

Key insurance cover and SME finance options

It is vital that small businesses have the key insurance coverage that they need, including cyber insurance, and that they a proper payment plan in place. Given current market conditions, this is far from easy to achieve. This is why it is important that business owners are aware of all the finance options available to them, including the services of alternative lenders.

To find out more about A&T Business Associates services, contact Steve Bowles on 01903 602211 or steve.bowles@atbusinessassociates.co.uk.