According to a 2019 ASIC report on corporate insolvencies, the top three nominated causes of failure for businesses are inadequate cash flow or high cash use (51% of reports), poor strategic management of business (43% of reports) and trading losses (39% of reports).
Most major insurance companies offer retail clients flexible monthly payment options for things like car, home or life insurance.
But when it comes to business and commercial insurance, most companies don’t offer the same flexibility. This is where Premium Funding comes in handy.
What is Premium Funding and how does it work?
Premium Funding, also known as Premium Financing, is a great way to smooth out your business insurance costs over the course of the year.
With Premium Funding, rather than having to pay the total amount of your insurance policies upfront, you can pay it off in monthly instalments, plus interest. The cost of the interest will also usually be tax-deductible.
This type of funding can be used to pay for a range of different business insurances including public liability insurance, theft and business interruption insurance.
Most premium funding companies allow businesses to pay off the borrowed amount over ten months. But if the business does not repay the borrowed amount plus interest, the lender has the right to cancel the policy.
Your insurance broker will put your policy in place as normal, but instead of giving the invoice to you to pay, they will set up a contract with a Premium Funding company (the ‘Funder’). The Funder pays the full premium to the insurance company and then it’s your responsibility to repay the Funding company over a period of up to ten months.
How can Premium Funding help my business?
Premium Funding is especially desirable for businesses with fluctuating cash flow. While you may not have the cash for your annual insurance policy available now, with Premium Funding you have the ability to pay it off over time.
Some of the advantages include:
- Improved cash flow: spread your payments over ten months instead of one lump sum.
- Convenience: eliminate the need for your business to come up with a large lump sum payment upfront, which can be inconvenient for those with fluctuating or unpredictable cash flow.
- Provides an additional line of credit not impacting your current funding lines.
- The financing cost is fixed and generally tax deductible for business purposes, subject to verification with your financial adviser/accountant.
- Access to insurance coverage: Premium Funding can provide businesses with access to insurance coverage that they might not have been able to afford otherwise.
- Flexibility: choose the repayment schedule that works best for you, which can help to reduce financial strain.
- Risk management: having the appropriate insurance coverage is important for managing risk and protecting a business’s assets. Premium Funding can help your business obtain the coverage it needs.
This type of funding can be used to pay for a range of different business insurances and the Funder can wrap up the cost of several premiums into a single loan, allowing you to pay for a range of insurance policies in a single monthly payment.
It may also suit businesses that can generate more profit from using the cash to invest in stock or other parts of their business rather than paying insurance premiums upfront. In this situation, the cost of the premiums is less that the profit that can be earned otherwise.
Premium Funding is a great alternative to approaching a bank for finance. Premium Funders typically won’t require collateral in the same way a bank may require security, for instance a charge over your personal property.
How Carbon Insurance Brokers can help
There are many instances in which it might suit a business to use Premium Funding.
The value of premiums funded can vary from a few thousands to hundreds of thousands, depending on the client.
If Premium Funding is something that may suit your business, talk to our insurance brokers today about funding options that may suit you.