Is business loan protection right for you?

Securing a loan to run your business comes with inherent obligations and risks. Lenders often require that you make regular loan repayments on a fixed schedule as per the loan terms. In most cases, they’ll use your business and personal assets as collateral should you fail to make the repayments. 

But, what if you were to pass away or become critically incapacitated before repaying the loan in full? Or what if a natural disaster was to happen and destroy your business property in a flash? Is your business going to stand up to the test and stay viable?

To cushion yourself and your business against any internal or external risks, it makes good sense to protect your personal and business assets.  Business loan protection is an insurance plan designed to protect your business and its key individuals should the worst happen. Also known as a business liability or commercial debt insurance, this policy pays out a lump sum in times of crisis to prevent your business or family assets from being seized by lenders.

In this post, we discuss three key reasons you need to consider taking out the cover for your business soon.

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Improves the financial stability of your business

This mainly applies when you have a business loan and its guarantor passes away or falls sick and is unable to meet their obligations. Most lenders will still ask for the full repayment of outstanding debts as per the agreed terms.

If this happens, it could place a significant financial burden on the business at a time when a key person is no longer around. This is where a business loan protection policy comes to aid. Your insurer steps in to make the loan repayments and helps the business recover from any financial disruptions.

By providing the means to repay outstanding debts, this policy secures the financial stability of the business and rescues it from collapsing.

Helps to run the business when cash flow is interrupted

You don’t need to be reminded how much havoc the critical illness of a business owner can wreak on the cash flow of the business. Cash flow is the amount of money that’s moving in and out of the business per month.

When a business owner or key executive becomes seriously ill or incapacitated, there’s a likelihood a lot of money will go out of the business in an attempt to keep it alive. This could cause significant interruptions to the normal cash flow of the business.

In times of financial crisis, a business loan protection policy provides the much-needed funds to run the business while the owner is gone or too sick to work. This enables the business to pay off outstanding loan balances, meet the personal needs of the sick business owner and their family, pay suppliers, and meet other day-to-day commitments, including staff wages.

Ensures business continuity when there’s insufficient assets to pay up the loan

Business loan protection policies are especially crucial for businesses that are unlikely to repay outstanding debts comfortably if the owner falls critically ill or passes away. Unprotected debts can be detrimental for firms with few assets to settle up the debts if the guarantor passes away.

For example, if the business goes under due to the demise of its owner, the lender may go after the guarantor or their estate if the firm’s assets are fewer than the debts owed.

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This puts both the guarantor’s assets as well as those of the firm at risk of being auctioned by the lender. Luckily, with this plan in place, you can easily safeguard the firm’s assets and ensure its continuity whether there are insufficient assets to offset the loan or not. It comes in handy for firms that are ill-equipped to repay the loan if they run into trouble.

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While business loan protection insurance may not be necessary for every business, it’s a policy we recommend highly for businesses that rely heavily on individuals who serve as the guarantor for loans. The policy covers most business loans including commercial loans and mortgages, director’s loans, venture capital loans, and personal guarantees.

Having this plan in place gives you more peace of mind knowing that your business and family assets are always secure should the inevitable happen.

Do you have any questions or feedback regarding business loan protection cover? Share them with us in the comments below.