Cashflow crisis affects 37% of SMEs

In the final three months of last year over a third of the UK’s SMEs were using borrowing to keep afloat according to research from Purbeck Insurance Services which found 37% of all loan applications made in Q4 2025 were for working capital to support cashflow, up from 33% a year earlier.

Todd Davison, MD of personal guarantee insurance specialist Purbeck, said: “This is a clear indicator that a significant proportion of SMEs are using borrowing defensively — to plug gaps created by rising costs, payment delays and tightening liquidity, rather than to pursue growth.

“The problem is particularly acute in sectors such as construction. Looking at loan behaviour in this sector, our analysis shows that over half of the loans taken by constructions firms are for working capital.”

The recent Business and Trade committee report on current pressure facing SMEs identified late payment as a key issue for small business. Its findings suggested around 38 small suppliers are estimated to close each day as a result of late payment practices.

Evidence from Sage given to the committee indicated that UK small businesses were owed £112 billion in unpaid invoices by the end of 2024, while MPs were also told that currently nearly half of all invoices are paid late, even with payment terms of 60 to 90 days now routine in sectors such as construction.

“At the same time, many directors are being asked to secure borrowing with personal guarantees, putting personal assets on the line just to stay afloat. That’s why personal guarantee insurance (PGI) plays an increasingly important role — giving business owners greater confidence to access essential funding while reducing the personal financial risk that often comes with it.

“Tackling late payment must now be a central pillar of the Small Business Strategy. Ending this entrenched practice would ease pressure on working capital, reduce reliance on emergency borrowing, and allow SMEs to focus on growth rather than survival,” Davison concluded.