Corporate debt – how does a business survive in the event of death or illness of a partner or director?

Many businesses have some form of borrowing in place; often loans to assist with capital projects such as the purchase of premises or plant and machinery, or overdrafts to assist with shorter term working capital. Many directors also make substantial financial commitments to their businesses via director’s loan accounts.

Whilst most proprietors have arranged insurances to cover these important business assets, far fewer of them have established cover to repay outstanding corporate debt in the event of death or illness, and if the need does arise is there sufficient capital available to repay this? 

Death or long term illness/incapacity can change the complexion of a business entirely, so if this happens (and it does) business owners need to ask themselves how well they are prepared and what the potential impacts could be.

Below are some key questions we think business owners need to consider:

  • Is there sufficient cash available to repay the debt? And if this is used what about short term cashflow?
  • Will the bank demand repayment, or will it be necessary to consider a re-structuring of the debt?
  • Is there sufficient to repay director’s loan accounts as well as the other debt?
  • What will be the impact upon the relationships that the business has developed and will the director’s/partner’s absence affect turnover and profitability?

These are just some of the questions that death or incapacity could raise, so putting the right cover in place is something all business owners should consider.

Obtaining professional advice is also essential. Make sure your adviser has a good understanding of your business and fully considers the potential impact such events could have, to ensure that your business gets the cover it needs to help properly protect it. 

For further information about business protection visit www.armstrongwatsonfp.co.uk

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