Business Protection: Business loans

In our third instalment of our Business Protection blog series, we look at business loan protection.

Many people have a mortgage on their home. Many will take out life cover so that the debt would be repaid if they died. This type of insurance provides peace of mind that their family can go on living in the home with no lender chasing the debt, if the worst was to happen.

Many businesses also have some type of debt; commercial loans, mortgages, overdrafts. These will hopefully help the business grow and prosper. However, what if owners or the loan guarantors die or become critically ill? The debt could soon become a significant liability if the business doesn’t have sufficient assets to repay the loan.

Does a commercial loan have to be repaid on the death of the guarantor?

Almost certainly yes. Even a director’s loan would have to be repaid.

If this is the case, where does that money come from? It could leave a deficit in the accounts if taken from the business.

Could the business take the financial burden?

If there aren’t sufficient assets to cover the debts, lenders can seek repayment from the guarantors estate. This could even mean calling on personal assets including the family home.

Which businesses benefit most from insuring debt?

Essentially, every business should consider insuring debt.

Ironically, the businesses that are least able to repay their debts (often smaller businesses and start-ups) are more vulnerable and less likely to have bought cover.

Business Loan protection

What is it?

It’s a type of insurance policy for businesses. It will help pay off business debts if the owner/debt guarantor dies.

Critical Illness cover option is also available.

Who is covered?

Anyone who has guaranteed the debts – usually the owner, but can be a partner or director of the business.

Who benefits?

The business, because debts are repaid at a difficult time.

Other blogs in this series are also available:

1: Tax efficient life cover
2: Shareholder Protection

Contact us

For further information on the content of this blog, please contact Nathan Douse on 01772 821021 or email nathan.douse@mooreandsmalley.co.uk 

The purpose of this blog is to provide technical and generic information and should not be interpreted as a personal recommendation or advice.

This article was originally written by our colleagues at MHA Tait Walker.