Business Loan Protection: Who is it For?

Business loan protection can be crucial in helping the business pay back a loan.

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Often businesses need additional funds to help grow or expand, which can be achieved in the form of a business loan. It’s important that you have the right protection in place to repay the outstanding debt, should something happen to the owner or director.

Business loan protection can be crucial in helping the business pay back the loan during a difficult time.

What is business loan protection?

A business might need a loan for any number of things, such as moving premises, buying stock or expanding operations. There are usually two types of business loans’ unsecured and secured.

Unsecured means your business can borrow money without the risk of using your business assets as security. On the other hand, secured means your business borrows money using an asset as security, which the lender can sell if you don’t pay back the loan. Assets usually include property, stock or machinery. 

Some loans will need the owner or director to guarantee the loan, making them personally liable for the debt. 

Companies can take out business loan protection so that if the guarantor passes away, there are available funds to pay back the loan.

How does business loan protection work?

Business loan protection can be used to safeguard a number of different types of commercial debt. This can include overdrafts, business loans, commercial mortgages and directors’ loans. 

Whoever guaranteed the debt is usually covered by business loan protection insurance. This is usually an owner or director. If they were to pass away, the policy would pay out and the money could be used to pay back the loan. 

It is recommended if your business has outstanding debts that it would struggle to repay if the owner passed away. What’s more, if there’s unlikely to be enough assets in the business to settle the debt, business loan protection could be a lifeline for the company.

Why do you need business loan protection?

Unprotected debts can be very risky for a business. You never know what’s around the corner, and the unfortunate loss of an owner or director can sometimes throw the business into jeopardy.

If the company was to go under as a result of losing its owner, the lender of the business loan might seek repayment from the guarantor or their estate. This could put business and personal assets at risk.

How much cover do you need?

The level of cover should reflect the amount that would be needed to pay the debt or loan back. You can choose business loan protection insurance on a level or decreasing basis, depending on the type of debt you’re covering.

For instance, if you need protection to cover a loan for property, it’s likely that the debt will reduce as you continue to make payments.

Business loan protection can minimise financial hardship, allowing the business to keep trading as normally as possible during a challenging or difficult time.