Protecting your Business
Loan protection insurance
It’s often said that money acts like oil in business: with it, your business purrs contentedly, without it, it grinds to a halt. Most businesses borrow money, either to invest in their long-term development or to provide short-term finance to cover the commercial world’s roller-coaster ride of unexpected events and difficult times. If your business is like many others it’ll probably have a variety of loans, maybe an overdraft and possibly a commercial mortgage; it may also have a venture capital loan and, if the directors have provided finance on a personal basis, directors’ loan accounts.
All the time the business is ‘servicing its debt’ there’s no problem, but what happens if it can’t? Many businesses rely on relatively few people to generate their revenue – would your business be able to continue to repay its loans if something happened to one of them? What would happen if it couldn’t and the loan was recalled? What would happen if you had to repay a director’s loan account?
‘Loan protection insurance’ would help your business repay outstanding borrowings should one of the business owners or a key person dies or suffer a critical illness; it can be used to protect commercial loans and mortgages, venture capital loans, directors’ loans and personal guarantees. In fact, such is the risk of default, many lenders make protecting a loan a condition of their offering it.
Although it may seem to be the same as key person protection insurance, there’s a significant difference: key person protection guards against ‘general’ financial loss caused by the loss of a key person, which may include loss of business, hiring temporary cover and long-term recruitment costs. Business loan protection insurance guards against the inability of the business to either service or repay specific business loans. Your business may need both key person protection and business loan protection insurance or it may need one and not the other.
Business loan protection is similar to personal life insurance in that a life, or life and critical illness, policy is set up for each person who has guaranteed or is responsible for repayment of a specific loan. It means that identifying exactly who within the business has liability for each loan, along with their relationship to it – they may be solely, jointly or severally liable for its repayment – is a fundamental need.
Policies can be owned by either the business, an individual business owner or assigned directly to the lender and, although the term of the cover must match the term of the loan, polices can be written on either a fixed or decreasing value.
If a claim is made the proceeds are paid to the policy owner who can then decide whether to use them to pay off the loan in full or continue to repay the loan against the agreed schedule. If the policy was assigned to the lender, the proceeds of the claim are paid to them and are usually used to pay off the loan.
Although loan protection insurance won’t compensate for the loss of a friend and valued member of the business, but it may help you keep your business and secure its future.
How can One Financial Solutions help you?
Life is full of risks. As a firm of independent financial advisers we can provide you with impartial advice to help you identify the potential risks that you and your business may face.
We’ll work with you to plan an appropriate protection strategy, recommend the best products from across the whole of the financial services’ market, help implement the protective safeguards you need and provide a periodic review. It’s all about ‘risk management’; knowing the risks you face means you can protect your interest in your business.
So, if you’re looking for help with any aspect of protecting your business, please call us on 020 3714 9565 or ask us to call you by sending an email to firstname.lastname@example.org.