What is Business Loan Protection?

The inability to pay off business debts such as loans, commercial mortgages and overdrafts should a key person pass away or suffer a critical illness can lead to financial difficulty for a business. It can even lead to the closure of the business or personal guarantees being called in.

By arranging business loan protection, a sum would be paid to the business in the event of a key person passing away or suffering a critical illness. This will enable the company to repay any debts accounted for by the policy. Some commercial lenders insist business loan protection be in place but even if they don’t, it is something which every business with debts should consider.

You may have given the lender a personal guarantee, such as your home, in case the loans cannot be repaid. It is therefore important to ensure the debts would be paid off if you passed away in order to ensure your family are not affected.

  • Case Study

    Company Ltd are a small-medium sized business who sell clothes and have 1 shareholder. The company arrange a loan of £100,000 and as there is only 1 shareholder, the lender asks for a personal guarantee, should the debt not be repaid. The shareholder gives his family home as the personal guarantee.

    Upon discussion with their adviser, the director concludes that if he were to pass away, the business would have to repay the debt because there would be no way the business could carry on running, therefore leaving his family at risk of having to sell their house. To prevent this situation from possibly occurring the company take out a business loan protection policy with the sum assured matching the amount of money borrowed.

  • Directors Loan Accounts
    • Have you made a loan to the business?
    • Did you know these must be repaid to your estate if you pass away?

    It is advisable to include any of these Directors Loan Accounts in the sum assured so that the business can repay these debts immediately.

Can I include critical illness cover?

It is possible for the policy to pay out should you suffer from a critical illness such as cancer, heart attack or stroke. This could allow the business to repay your directors loan account, which will provide you with additional financial security at a potentially stressful, uncertain time.

A key person suffering a critical illness could easily result in a loss of profits and knowledge within a business. Including critical illness cover could mean that some debts can be repaid, resulting in a reduction of outgoings. See Key person cover for more information.

Who pays the premiums?

The premiums are paid for by the company and the policy is owned by the company. Therefore in the event of a claim, the proceeds would be paid directly to the business.

The premiums are collected by monthly direct debit from the business’s account. An annual direct debit payment is also usually an option.

*Trusts are not regulated by the Financial Conduct Authority

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