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Risk management starts with the right insurance.
You have finally taken a long-overdue leap of faith in yourself! You have taken the first steps towards starting your own business. You spotted a gap in your chosen market and developed a sterling, comprehensive business plan to neatly fill it. You put in the time to carry out exhaustive market research. You created meticulously planned cash flow projections. You impressed the lenders and they have approved the business loan which will cover your startup costs and transform your dream into a reality.
You are feeling on top of the world!
But as new world challenge has been overcome, new world hurdles lie ahead of you. As you begin your entrepreneurial journey you will need to become adept at insulating yourself from the risks which could cause your nascent enterprise to implode and risk management starts with the right insurance. You may have factored in public liability insurance, professional indemnity insurance and the like; but have you considered putting a policy in place to protect the funding that made your business venture possible? Whether you have acquired a business loan to start up a new business or see an existing one through a period of expansion, Business Loan Protection should be considered an essential measure to protect your operation if the worst should happen.
Let’s find out why…
Business Loan Protection (also known as business loan insurance) is a form of life insurance which pays off your outstanding corporate debts should you or any other key person within your business’ organisational structure pass away unexpectedly.
As well as covering venture capital funding like startup loans, it can also include the commercial mortgage on your business premises, company overdrafts or any other form of commercial loan like bridging loans. As well as covering key personnel in the event of death, policies can also include critical illness cover. This insulates your business from risk when you or another important member of your team suffers a serious illness such as heart attack, stroke or cancer.
Many assume that if they have keyman insurance they don’t need Business Loan Protection. Yet while these policies are often referred to interchangeably, they are not the same product and provide different forms of cover. Keyman insurance also covers key personnel in your organisation and protects against loss of profits, supplier or consumer confidence or business contacts. It does not necessarily cover business debts and can leave a potential black hole in your cover. There is also a substantial difference between the tax treatment of keyman insurance and Business Loan Protection premiums.
Whatever the size, scope or nature of your business, if you have taken out any form of business loan, the right protection can make all the difference in keeping your operation afloat. Let’s look at some of the reasons why…
Whether you’ve taken out a loan for the purpose of getting your business off the ground or whether you’re leveraging one to oversee growth or expansion, your ability to repay this debt is likely intrinsically linked to the fate of key personnel. This might be you or another founding member of the team. It is the vision, leadership and guidance of these key personnel that gives your business the identity that resonates with your target market and the strategy it needs to ensure that performance goals are consistently met or exceeded.
While your business may be able to function without you or them, transitions of leadership are often tumultuous for businesses of all shapes and sizes and your profits may be adversely affected. This in turn can put increasing pressure on your business’ cash flow which in turn can make paying off unpaid business debts increasingly untenable.
If your business reaches a position where it is no longer able to pay its debts following your death or the death of another key team member, it may have no choice but to become insolvent. Thus, this can make all the difference between leaving a lasting business legacy for your family and employees or the brand you have worked so hard to build fading into obscurity.
Of course, we all assume that this eventuality will never happen to us or that our businesses are robust enough in their operations to manage without us. However, data from Legal & General indicates that 39% of company directors expect their company to fail within 18 months of the death or serious illness of a key team member.
How does it work?
There are two kinds of cover- Decreasing cover and Level cover. Which one you choose will depend on the nature of your loan. Decreasing cover falls alongside your repayment debt and reaches zero by the time your loan has been repaid. Level cover, on the other hand, remains fixed over time and is therefore usually used to cover interest-only loans, where the principle capital is not repaid until the end of the loan. Level cover ensures that the outstanding loan balance is always covered, right until the loan term’s end.
It is important to investigate the right cover you need to cover the loan’s terms, especially for joint loan applications. If you and a business partner are jointly liable, it is best to get a single policy written on a joint life, first-death basis. This covers the entire loan if one party dies or becomes critically ill. However, if multiple key people share responsibility for the loan it may be best to create individual policies to cover different individual’s liabilities especially if all parties are not of a similar age or state of health.
All businesses do well to keep their overhead costs well managed. However, the peace of mind and operational protection that Business Loan Cover offers is more than worth the negligible monthly cost of your premium.
Premium costs depend on the age and health of the policy holder(s) as well as their position’s inherent risk factors. For a 35 year-old entrepreneur, premiums may be as little as £5.91 a month. A small price to pay for the potential value of the cover.
Whatever the nature of your business or the intended purpose of your business loan, make sure that you have the right cover in place to protect your enterprise.
Want to know more? We’re happy to discuss how our Business Loan Protection can aid your operation. Call us today on 02071128844.
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