Premium funding a boon for small business

Premium funding may be able to help if you’re facing cash-flow challenges.

Premium funding works by having a funding company pay the full premium of your policy on your behalf to the insurer, while you repay the funder in monthly repayments.

This can help with your cash flow and can potentially help you to take out multiple policies when funding insurance, if required. There is an interest rate to pay – usually a fixed rate – which is generally tax deductible for the business.

Fitzpatrick General Manger, Daniel Holmes, said there are many organisations that offer insurancepremium funding.

“It’s just a loan transaction, really,” he said. “Instead of paying the premium upfront, the funder pays the premium to the insurer, and the business pays the premium funder over either 10 or 11 months.”

This type of funding can give businesses more options. For example, a small business can use it to pay for a number of insurances, not just one. The funder may also combine multiple policies into a single loan, which can enable the business to pay repayments each month via one single payment.

It may be an appropriate option for businesses that may not have the full amount for funding insurance for the total year’s policy available now, but have the ability to pay it off over time.

Generally, the business needs to put down a deposit of around two months’ premiums to secure the funding. The loan, plus interest, then needs to be repaid over 10 or 11 months, and if a business falls behind with its repayments, the funder can cancel the policy.

How premium funding overcomes technical challenges for small businesses

One of the issues with paying by instalment is a number of insurers have difficulty getting their systems to accept these types of payments.

“Paying for a policy using instalment payments might sound simple in theory, but in reality, it’s not that easy,” said Holmes. “Particularly because a policy can be changed.

“For example, a business might add a feature onto the policy, and need to pay an extra premium. Or it may take items off and need a refund. In cases where you’re talking about relatively small amounts of money, the cost of having the computer system do it can be very expensive. So premium funding offers an alternative to the insurer having to do it.”

Holmes added it is often a better option than approaching a bank, as no collateral is required. Banks often want security before funding a loan, such as a charge over the business-owner’s home.

“Premium funding can be available for various amounts from a few thousand dollars to many thousands,” Holmes said.

Meanwhile, he added, in the current environment of rising interest rates, businesses need to check the rates they’ll be charged on any premiumfunding arrangement before taking out a loan.

“As rates go up, the cost of the funding will also increase,” explained Holmes. “So, make sure you know what you’re paying – and check the fine print.”

Businesses need to check the rates they’ll be charged on any premium-funding arrangement before taking out a loan. Image: AdobeStock/Parilov

Important note

This article provides information rather than financial product or other advice. The content of this article, including any information contained in it, has been prepared without taking into account your objectives, financial situation or needs. For more information or questions on premium funding or your own policy, please contact Fitzpatrick & Co. Insurance Brokers on 03 8544 1600 or email: insure@fitzpatrick.com.au or visit the website at fitzpatrick.com.au. Fitzpatrick & Co has specialised in the horticulture and arboriculture industry for over 30 years, providing assistance and financial support to companies, associations and events. Fitzpatrick & Co is there when your industry needs you.

Image: Fitzpatrick & Co

 

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