IBA, as the premier business brokerage firm in the Pacific Northwest, is firmly established as a respected professional service firm in the legal, accounting, banking, mergers & acquisitions, real estate, and financial planning communities. Periodically, we will post guest blogs from professionals with knowledge to share for the good of owners of privately held companies & family owned businesses. The following blog has been provided by Neil Strohbusch of State Farm (www.insurewithneil.com):
Life Insurance A Tool to Satisfy a SBA Loan Requirement or Protect a Business Asset
If owning a business was easy, everyone would be doing it. Taking the necessary steps to become a business owner requires dedication, perseverance, a strong business plan, and the drive to do what needs to be done. Working with SBA to complete a purchase requires capital and your willingness to put in the necessary sweat equity.
The sweat equity is up to you. The process of securing capital for a business purchase has numerous requirements to successfully complete the transaction. One common requirement is to obtain Life Insurance to satisfy SBA financing requirements.
Utilizing Life Insurance is a cost effective method to make sure the loan requirements are met. If the business owner was to pass away too early, life insurance provides peace of mind that the business will have the opportunity to successfully change ownership as you have planned, remain the asset that you have built, and not be sold at a value less than it is worth in a quick sale. Lenders utilize life insurance as a tool to protect the money they have trusted to you.
Term life insurance is the most typical choice to satisfying lender requirements because it is more affordable than a permanent life insurance policy. Coverage for a term life insurance policy has terms of 10, 20, and 30 years depending on your financing requirements. Managing your expenses is critical and term life insurance is a guaranteed level premium for the term period of the policy.
There might be additional considerations for Term Life Insurance that business owners should be aware of:
Satisfy a Buy-Sell agreement using Term Insurance between business partners based on a prearranged agreement upon death of one partner.
Key Person Insurance is a life insurance policy on the life of a Key Employee to cover the loss of revenue or increase in expenses from the key employee’s death.
Questions about life insurance or other business insurance issues, Neil Stohbusch of Neil Strohbusch Insurance Agency, Inc. with State Farm is available to answer your questions at 425-216-3380 or Neil@InsureWithNeil.com.