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Business Protection – Do you have it? You should.

Business Protection – Do you have it? You should.

Prior to lockdown, over half (51%) of businesses had some form of debt, owing an average of £176,000 each – and yet just 20% used an insurance policy as security.

To add to this already significant issue, bank lending to struggling businesses via government-backed COVID-19 loan schemes reached nearly £52bn as of mid-August 2020 – meaning that UK businesses are more heavily indebted than ever.

Business loan protection
Business loan protection provides funds to repay a business loan, commercial mortgage, or a director’s loan if one of the company’s owners were to die or be diagnosed with a serious or terminal illness. Essentially, this type of insurance comprises a life cover or critical illness policy taken out on the life of the business owner or key person, with the payout ensuring the business can pay its debts should the worst happen.

Most lenders require some form of security when lending to businesses; often, business owners will use their own personal wealth (e.g. their property) as security. So, in addition to their business suffering if they were to unexpectedly die or become seriously ill, their family could face serious financial hardship or even lose their home.

Director’s loans
It is common for businesses to have a director’s loan account, through which the director can:

— Lend money to the business to fund initial start-up costs or see it through cash flow pinch

— Borrow money from the company that is not classed as salary, dividends or expense repayments.

According to research from Legal & General, the average director’s loan totals £169,000 – and yet well over a quarter (28%) of businesses are unaware that director’s loans must be repaid upon death. This means the business could collapse if there is no insurance policy in place as

Loss of a key person

A staggering 52% of businesses say they would cease trading within a year if they lost a key person. Losing a key member of staff can have a huge impact on the business in terms of lost profits, poor cashflow and, potentially, a change in its creditors’ attitudes to outstanding debts. That’s where business loan protection comes in – it can help alleviate financial pressure by paying off the company’s debts and enabling the business to get back on track.

As with all insurance policies, conditions and exclusions will apply

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How Secure Is Your Business?

How Secure Is Your Business?

Business protection is a crucial element in a company’s financial future, but how many have cover in place?

You may have covered the tangible assets in your business, but have you protected the most important asset; the people who contribute directly to your bottom line?

If the answer is no, you could be putting your business at risk. After all, if you lost a key employee, this could impact the day-to-day running of the business, it could hit profits and create problems repaying an outstanding business loan.

Research by Legal & General in their State of the Nation’s Small and Medium Enterprises (SMEs) report has found:

52% of businesses would cease trading in under a year if a key person became critically ill or died

47% of shareholders have no arrangements for their shares if they became critically ill or died

51% of businesses have some form of business debt of an average of £175,000

Safeguarding your business
Business protection insurance can help mitigate some of the risks. There are three main types of business protection:

Key Person Insurance provides a lump sum to the business on the death of an important member of the business.
Shareholder Protection Insurance provides a lump sum that will allow remaining shareholders to buy the shares of a deceased shareholder.
Business Loan Protection provides a lump sum to help a business pay any outstanding business loans.

Business Protection Insurance is designed to keep you trading. That’s why making sure you have the right protection in place should be considered a vital part of running a business.

If you are one of the 54% of SME that doesn’t have a relationship with a financial adviser talk to us! As professional financial advisers we can help you realise any risks you may and provide protection for the future of your business.

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