Legal problems are holding back the growth of small businesses, with late payments, commercial disputes and difficulties accessing professional advice creating financial and operational pressure, new research published by the Legal Services Board (LSB) has found.
What did the LSB survey find?
The LSB published its Small Business Legal Needs Survey 2026 on 9 November 2026. The research is based on responses from 10,352 small businesses, ranging from sole traders to businesses employing up to 49 people in England and Wales.
The survey found that 35.9% of respondents had experienced at least one legal issue during the previous 12 months. Across the sample, 29,014 legal issues were recorded. The LSB said this represented an average of 2.8 issues and suggested that small businesses collectively experience around 16 million legal issues each year across England and Wales.
- Businesses experiencing a legal issue36%In the previous 12 months
- Survey respondents10,352Small businesses
- Issues recorded29,014Across the survey sample
- Estimated annual issues16mAcross England and Wales
Trading matters were the most frequently reported category, affecting 22.3% of businesses. Tax issues affected 10.2%, while employment, regulatory and intellectual property matters also featured in the findings. Among individual problems, late delivery of goods and services, products or services not matching their description, delayed payment and tax disputes were commonly reported.
How are legal problems affecting businesses?
The survey found that legal issues can have consequences beyond the immediate dispute. Businesses reported lost income, additional costs, interrupted work and the loss of customers or contracts. These effects can divert time and resources away from routine operations and planned investment.
Among businesses experiencing legal issues, 22% reported a loss of income, 10% said they were unable to complete planned work, 9% incurred additional costs and 8% lost customers or contracts. Six per cent said they were unable to take on new work.
The financial impact could also be substantial. Among businesses reporting financial losses, 39% estimated that those losses exceeded £5,000, while more than one in ten reported losses above £15,000. The report notes that losses of this scale can represent a significant proportion of annual profit for sole traders and micro businesses.
Legal issues can become barriers to investment, productivity and business growth.
Finding reflected in the Legal Services Board’s 2026 survey
The LSB’s findings indicate that legal problems should be considered as both legal and business challenges, particularly where unresolved disputes affect cashflow, management time or a firm’s ability to take on new work.
Why does late payment remain a major concern?
Late payment was identified as one of the most damaging issues for small businesses. The survey found that 35% of businesses affected by late, delayed or partial payments spent additional time and resources chasing the money owed. A further 28% experienced difficulties meeting their own bills as a result.
The consequences extended to business development. Some 22% of businesses affected by late payment said they were unable to invest in growth or innovation. The report also identified effects including supply-chain disruption, price increases or late fees, difficulties meeting payroll and an inability to restock inventory.
Emma Jones CBE, Small Business Commissioner, said the findings reinforced the importance of tackling poor payment practices. She highlighted the Government’s Commercial Payments Bill as part of efforts to help small businesses receive payment without delay.
The LSB said it intends to focus attention on legal problems with the greatest impact on economic growth, particularly late payments.
What does the survey say about access to legal support?
The research identified a substantial gap between businesses needing professional legal support and those whose needs were met. Around 11.2% of businesses were identified as having a legal need requiring professional assistance. However, only 1.7% of all businesses had that need met, while 9.4% had an unmet legal need.
The report therefore found that more than eight in ten identified legal needs requiring professional support remained unmet. It said the barriers were not limited to affordability: businesses could fail to seek help, struggle to identify an appropriate source of advice, delay taking action or lack confidence in navigating available options.
Only 10% of small businesses reported having internal legal capability, meaning most must rely on external information and support when legal issues arise. The survey also found that accountants and tax advisers were the most common sources of advice, ahead of solicitors and barristers.
Legal confidence was associated with better outcomes. Businesses with high legal confidence were three times more likely to shop around for providers than those with low confidence, and were more likely to seek professional advice and report positive outcomes.
The LSB also noted that businesses are increasingly using technology to find legal information and support providers. Its report said AI chatbots were a source of help for 6% of small businesses experiencing an issue, although the research described these tools as complementing rather than replacing trusted relationships and professional advice.
What action is the LSB calling for?
In response to the findings, the LSB is seeking engagement with government, legal services regulators, business support organisations, lawyers and law firms. It has identified three areas where action is needed:
- Address legal problems with the greatest impact on economic growth, particularly late payments.
- Help small businesses recognise legal problems at an early stage and identify appropriate support through wider business support services.
- Make legal advice and services easier to find and access through technology and improved signposting.
Richard Orpin, Chief Executive of the LSB, said that helping businesses resolve problems earlier and access appropriate support could improve resilience and allow them to focus on their core activities.
The survey’s overall findings suggest that improving access to legal support involves more than the availability of legal services. Businesses also need the confidence and information to recognise legal issues, understand their options and seek help before problems become more serious.
Frequently asked questions
How many small businesses experienced legal problems?
The LSB survey found that 35.9% of the 10,352 businesses surveyed had experienced at least one legal issue during the previous 12 months.
What were the most common legal issues reported?
Trading issues were the most common category, affecting 22.3% of businesses. Common individual issues included late delivery of goods and services, products or services not as described, delayed payment and tax disputes.
How does late payment affect small businesses?
Among businesses affected by late, delayed or partial payments, 35% spent significant time and resources chasing payment, 28% experienced difficulties paying their own bills and 22% were unable to invest in growth or innovation.
How many businesses had unmet legal needs?
The survey identified 11.2% of businesses as having a legal need requiring professional support. The need was met for 1.7% of all businesses and remained unmet for 9.4%.
What action is the Legal Services Board proposing?
The LSB is calling for action to address high-impact legal problems such as late payment, improve early recognition of legal issues and make legal advice and services easier to find and access.