Premium funding: How can it help my business insurance?
As a business owner, you might have encountered the term ‘premium funding.’ Simply put, premium funding involves taking out a loan to cover your company’s insurance premiums, including the interest added to the borrowed amount.
So, rather than facing the burden of paying the entire price upfront, you can spread the cost through manageable instalments, plus some interest. Notably, the interest expense is typically tax-deductible for the company.
Premium funding features:
- Easy quoting and fast approvals
- Flexible funding solutions with multiple repayment options including monthly, quarterly or biannually
- Repayments options via credit card, direct debit or BPay, plus the ability to debit repayments from multiple bank accounts
- Funding for both commercial and domestic policies
- Invoice funding
- Workers Compensation funding campaigns
- Client Access Portal to view premium funding details, statements and update account details including addresses and bank account details
- Continue reading to discover how premium funding could benefit your business!
What can premium funding be used for?
Premium funding can be used for a variety of insurance products, including:
- Home and contents insurance
- General business insurance
- Public Liability
- Professional Indemnity
- Motor fleet policies
- WorkCover and workers’ compensation
The pros of premium funding
1. Enhanced cash flow management
Premium funding enables business owners to spread the expense of their insurance premiums across a specified timeframe, usually through monthly instalments. This strategy creates a steadier cash flow by averting upfront insurance payments that could place a lot of pressure or stress on the company’s financial health. Plus, depending on your accounting structure, you might be able to claim interest payments as tax deductions.
2. Preserved working capital
It isn’t just about smart money management – it’s about unlocking the full potential of your business. By financing insurance premiums, business owners can better protect their working capital, ensuring these funds stay within reach for critical operational needs and exciting strategic investment opportunities. Ultimately, this savvy approach allows you to pursue promising business initiatives without compromising their day-to-day operations.
3. Improved business budget planning
Premium funding can empower business owners, allowing them to master their monthly insurance premium payments with ease. This repayment predictability simplifies the process of budgeting for insurance costs and producing financial plans. The result? Enhanced overall financial management, making for smoother and more effective business operations.
4. Strengthened risk management
With premium funding, business owners can benefit from robust insurance coverage without exhausting their cash reserves. You’ll be able to confidently navigate a spectrum of business risks, like theft, public liability and natural disasters, safeguard your valuable assets, and strengthen the resilience of your daily operations. It’s a win-win!
5. Boosted financial flexibility
Premium financing is a versatile tool that allows businesses to craft bespoke payment plans that meet their needs and cash flow patterns. Take your pick from multiple repayment options and methods including monthly, quarterly or biannually, credit card, direct debit or BPay. This tailor-made approach empowers companies to synchronise premium payments with their revenue cycles, delivering a seamless method for handling financial commitments.
*While these benefits make premium funding appealing for many businesses, carefully evaluating the terms and conditions of the financing agreements, including interest rates and fees, is crucial. Each business’s financial situation is unique, so it’s best to consult a trusted financial advisor or insurance broker to confirm if premium funding is the right choice for your business.
1. Potential impact on credit score
Premium financing agreements often stretch out over the long term, meaning businesses must carefully assess their ability to keep up with the agreed monthly payments. If your business encounters unexpected financial difficulties, it may struggle to meet the agreed repayments. Economic downturns, natural disasters, or revenue fluctuations can all contribute to unforeseen financial strain.
Regardless, missing your repayments could seriously impact your business’s credit score, casting a shadow over your future chances for borrowing and securing financing opportunities.
2. Loan default risks
In addition to your credit score, failing to meet your premium financing repayments can lead to the termination of your insurance policy. And as Murphy’s law states, “anything that can go wrong will go wrong”. Consequently, until your finances are back in order, your business is left vulnerable to various potential risks and pitfalls – a nightmare for any business owner! Again, it’s crucial to assess the terms and conditions of your financial agreement so you’re well prepared for every scenario.
Discover the best strategy for your business
At Knightsbridge, our seasoned insurance brokers bring a wealth of experience to the table, ready to provide the tailored advice your company deserves. We are heavily compliance-driven and, unlike the banks, are 100% transparent about all charges and interest fees.
Our team will assess your business structure and ask the right questions to ensure you make the right move for long-term peace of mind. Connect with us today to see how premium funding could enhance your business operations, or if there’s another path you should take.