Taking out a business loan can be a quick solution to providing cash flow needed for growth and investment. However, taking out loans is not without risk. Factors such as collateral, interest rates and loan terms should all be considered beforehand. Businesses can take steps to minimise their liability and risk with careful planning and forethought.
Business loan protection could give your business a financial lifeline in the event of losing a key employee, such as a director, due to death or critical illness.

Business Loan Protection Insurance

Business loan protection insurance is taken out to cover the event of the loan holder dying midterm. Usually, the lender would expect immediate repayment of the loan in its entirety, putting the business at great risk if it doesn’t have the capital to repay. Business loan protection pays out a lump sum in the event of death to cover the business debts of the deceased.

It also protects business owners who have taken out a personal guarantee, meaning that their personal assets remain untouched in the event of death, as the business loan protection insurance would come into force.

Directors Personal Guarantee

A directors personal guarantee involves a director securing a business loan against personal assets, such as their home. If the business is unable to repay the debt, the directors’ personal assets will be used to make repayment. Having business loan protection insurance adds an additional layer of security when taking out a business loan, protecting the director’s personal assets from being affected, should the worst happen.

It’s best to seek specialist, independent, legal advice before committing to a directors personal guarantee. Find out more about the process, benefits and risks.

Always speak to a professional before committing to business loans, protection insurance or a directors guarantee.