Legal issues in small businesses prevent or delay investment in innovation and growth after four in 10 legal matters resulted in costs exceeding £5,000 and one in ten exceeded £15,000.
A survey of more than 10,000 businesses conducted by the Legal Services Board found more than a third of respondents (36%) experienced at least one legal issue the previous year, with an average of 2.8 issues being reported per business, equating to around 16 million legal issues annually across England and Wales.
The Small Business Legal Needs Survey 2026 found problems are “not identified early enough and not resolved effectively”.
In response the LSB is calling for action from the government, legal services regulators, business support organisations, lawyers and law firms in helping to address legal problems having the greatest impact on economic growth alongside helping small business to recognise and find support for legal problems by making legal advice easier to access.
When sourcing advice on legal problems, solicitors and barristers came second in line behind accountants and tax advisers, the survey found, highlighting the importance of “trusted intermediaries and referral networks”, the Board noted.
Commenting on the report Richard Orpin, chief executive of the LSB, said: “Small businesses are the backbone of the economy, yet too many are losing time, money and opportunities because legal problems are not identified early enough or resolved effectively.
“Our findings show that legal problems are business problems. They can hold back growth, delay investment and prevent businesses from reaching their full potential.
“Small businesses are important consumers of legal services, but too many still struggle to find the right help when they need it.”
Among the common legal problems faced by businesses according to the results of the survey were late payments and disputes over the delivery of goods and service, with 35% of businesses reporting significant time spent chasing payments and 28% experiencing difficulties paying bills as a result.
Emma Jones CBE, small business commissioner at the Department for Business and Trade, said part of her mission is to get money moving faster through the economy.
“Our aim is to reduce hours spent chasing debt and have those hours instead focused on more productive activities that deliver growth,” she explained, adding the results of the survey show “the importance of tackling poor payment practices”.
“That is why I am pleased the government is taking the Commercial Payments Bill through parliament to support small businesses to be paid quickly, without delay.”
Tina McKenzie, national chair of the Federation of Small Businesses, added there is a need to make the legal system “more responsive to small firms’ needs” therefore freeing up “time, money, and mental energy for small businesses to invest in their own growth and development”.
Businesses with greater confidence in identifying legal problems and knowing how to seek legal help were more likely to achieve positive outcomes, the research also showed.
The report also highlighted many companies delayed seeking support until problems became more serious.
One major barrier is many businesses simply do not have dedicated legal expertise in house said the report: “Overall, only 10% of small businesses have some form of internal legal capability. Meaning they have someone who is qualified as a lawyer or someone who has been trained to handle legal issues. However, this varies by size – from 7% of micro businesses and 9% of sole traders to 42% for those with ten to 49 staff. Some 12% of small businesses report having an on-going contract with an external organisation to provide them with legal services. Though this also varies significantly by size. While 48% of small businesses with ten to 49 staff have an ongoing contract, only 14% of micro-businesses and 10% of sole traders also have an ongoing contract.”
David Bharier, deputy director of British Chambers of Commerce, commented: “The cost burden facing SMEs has grown substantially in the last decade, and that matters when our data shows just 17% of firms are planning to increase investment.
“As this report shows, legal disputes and late payments add to that burden. With further obligations on the way, it is essential that policy is designed to support investment rather than constrain it.”
