Business insurance is just one cost that smaller companies are having to bear at a time when lending has been dramatically scaled back by the banks.

Putting the cost of business insurance to one side a minute, it’s reckoned that banks have reduced lending to the sme sector by around £20 million a day. Take that out of the system and you have potentially a huge problem with an increasing amount of companies struggling to survive.

Small business insurance cannot directly compensate for a belligerent bank manager, but it can help mitigate against some of the effects of a tighter budget if things go wrong. When machines break down, or someone had a claim for negligence, without adequate small business insurance, having to pay out can literally mean the difference between survival and going under.

Business experts are warning that such caution by the banks is causing real difficulties in the small company sector, although they do point out the fact that it’s not just the usual suspects that should shoulder the blame. The severe recession has caused many smaller banks, foreign banks and lending institutions to throttle back on the amount that they can risk in the sme sector. The UK’s high street banks might rightly justify some of the flack they are receiving from smaller owner management and owners, but they are others in the frame as well.

But far from finding a solution to the problem, it might well be that the sudden lending turn-off actually did its worst at the start of the recession, and that things are easing just by virtue of the fact that the most vulnerable companies have already disappeared. Recent figures suggest that company receiverships are coming off a high point.

Although this does not mean that the troubles over and that other costs, such as monies spent on SME insurance, can be ignored.

You could argue that the law of the jungle has been invoked again, that only the fittest will survive a harsh period. The bigger worry is that the fittest companies have survived, but also did the sensible thing and tried to hang-on to their workforces, knowing that suddenly staff might look good for the accountants, but caused a major problem when the order books began to refill. If these good companies see no light at the end of the tunnel, or fear a double-dip when a second recession is in the offing, then they will have no choice but to shed staff. That increases unemployment, lowers business sentiment and would cause a harder recession. And that would make matters far worse.

Companies might have worries regarding just what their business insurance will cover them for should matters get worse, but all businessmen will be hoping that the lending tap is turned back on pretty soon.

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