The CBILS has been designed by the government to support the continued provision of finance to smaller businesses (SME’s) who have and are experiencing lost or deferred revenues, leading to disruptions to their cashflow as a result of the Covid-19 outbreak. The scheme supports a wide range of business finance products, including terms loans, overdrafts, invoice finance and asset finance facilities.

Without this scheme many SME’s would struggle to operate and possibly cease to trade meaning that this intervention made by the government has been much needed. What would happen to the business however if one or more or the business owners passed away or is diagnosed with a critical illness? In a normal circumstance the loan will still need to be repaid and the funds used for this purpose will eat into any potential value in the business that tends to be passed across to family members in the form of a shareholding or cash sum.

As a result, should some form of Business Loan protection be considered?

What is Business Loan Protection?

Business Loan Protection helps the business pay any outstanding borrowings such as a loan or commercial mortgage, should the person(s) covered die or become diagnosed with a specified critical illness. In some situations insurers are also able to consider including cover for overdrafts or director loan accounts.

How does Business Loan Protection Work?

Business Loan Protection is either life assurance or life assurance and critical illness cover written on the life of the key individual or individuals so that any money due can be used to pay towards any outstanding debt or loan. The money will be paid to the business where it is a company, Limited Liability Partnership (LLP) or Scottish Partnership. Where the business is a partnership, the policy will be written on an own life basis and may be placed in trust for the other partners.

How much cover do I need?

The level of cover reflects the amount needed to pay the outstanding borrowings. The policy should be set up to reflect the terms of the borrowings and could be on a level or decreasing basis.

There are various issues to consider around Business Loan Protection and these are highlighted below:

  • What would you do in the event of the loss of the individual or individuals who have guaranteed a loan?
  • What would you do if an overdraft, loan or commercial mortgage is unable to be paid due to the loss of a shareholder or director?
  • Director loan accounts should be repaid on death – where will this money come from?

If Business Loan Protection Insurance that you are looking to discuss, please contact Wingate Benefit Solutions on 01883 332260 or at info@wingate.com and we will be able to help.

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