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The Business Magazine November 2023
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The Finance Roome looks at business loan and shareholder protection

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75% of businesses don’t have business debt protection. Is your business at risk? If a shareholder died, would you be able to buy back their shares?

Businesses across the UK take the time to consider employment benefits, pension schemes or staff protection, yet the business itself can be overlooked. The business is pivotal to everything else. Without it, none of the other components would link together.

Most businesses have some form of business debt. This could be bank loans, overdrafts or credit cards. The loss of the person who has guaranteed a loan is particularly serious for a business. It may be that the guarantor has put their own personal wealth at stake, perhaps by using their home as security – this, and the business itself could be at risk should the loan be called in by the lender.

Directors’ Loans

It’s also common for a business to have a director’s loan account where a director has lent money to the company to support start-up costs, to fund expansion or perhaps where a director has left dividends within the business to be used as working capital. Essentially, it’s a debt owed by the business to the director that would need to be repaid on the directors’ death, if demanded by their estate.

Business Loan Protection helps a business pay an outstanding overdraft, loan or commercial mortgage, should the person covered die or is diagnosed with a terminal or critical illness (if chosen) during the policy term. When a valid Business Loan Protection claim is made, a sum equal to the outstanding debt could be paid to the business to repay this debt.

75% of businesses do not have cover in place to repay debt

A large proportion of businesses who took part in a Legal & General survey in 2019 did not have this cover in place. Of those who did not have cover, 75% did not see the need or hadn’t considered it.

Who’s running the greatest risk?

Smaller firms are far less likely than larger businesses to insure business debts. Only 58% of small or medium-sized companies have business loan protection and this drops to 43% of recent start-ups. Unfortunately, it is these smaller businesses that are often least able to repay their debts in the event of the death of an owner or partner which may leave them vulnerable to bankruptcy and leave the owner’s personal wealth and family at risk.

Share or Ownership Protection

Nearly half of businesses have no specific arrangements for their shares and owners rarely have provision or direction for them in their personal wills.

The death of a business owner is likely to have a major impact on a business. It could lead to serious financial uncertainty. If there’s no shareholder protection in place, the owner’s share in the business may be passed to their family. This means the surviving business owners could lose control of a proportion or, in some circumstances, all of the business. The family may choose to become involved in the ongoing running of the business or could even sell their share to a competitor.

The ideal solution is for the remaining owners to buy back the shares, retaining control of the business and ensuring the deceased’s family is fairly financially compensated for the value of the shares. This is where Share Protection insurance can help.

We’ve put together a free Business Continuity Plan toolkit which provides all the information your business needs to ensure you and your staff are prepared for the unexpected. No matter how tough it gets, your business will be protected.

DOWNLOAD your copy here:

Front cover business continuity

The Finance Roome provides clients with a variety of business protection products to help you protect your business and your people.

If you’d like to speak to us, call the business protection team at our Cheltenham office today on 01242 226353 or email us: [email protected] to request a call back.

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