Small business owners may find their backs up against the wall during these days of tightened credit. Obtaining the financing they need to grow is increasingly difficult, and even when they do obtain credit, it is often at high interest rates that increase the cost of doing business.
It’s a perfect time for agents to remind their small business clients that they may be overlooking a reserve they have: the cash value of a whole life insurance policy. This can be an especially valuable tool for small or young businesses that are deemed a credit-risk because of a lack of collateral or history. Business owners can tap their whole life insurance policies for capitalization and liquidity, particularly in times of tight credit, and some often do.
For example, one Tampa, Florida business has used the cash value of its whole life insurance policies several times over the years, in one instance staving off mortgage foreclosure and in another, redeeming shares. One of the company’s owners declares that the whole life policies’ cash values enabled the company to weather tough times, grow and become a success, even though at various times it was unable to obtain credit through bank loans.
A flexible solution
The company faced circumstances familiar to many small and/or new businesses. Although the prospect of borrowing from a bank and repaying over an extended period of time can be attractive, doing so requires the business to generate sufficient cash flow to make the required payments. Moreover, the company’s ability to generate income may depend upon the efforts of a key owner, and his or her death, disability or retirement might devastate the business. If that is the case, the creditworthiness of the business and the other owners may be impaired. The interest on a loan might be substantial, or it may be that the business will be unable to obtain a loan.
That’s why whole life insurance is an attractive, if sometimes overlooked, solution: It can kill two–or more–birds with one stone, solving continuity and succession challenges while also addressing liquidity issues. In fact, whole life insurance policies can help small businesses address a number of issues (see chart).
How it can work