Business loans and credit facilities are a normal part of most businesses. But if a partner in your business was to die, become disabled, or suffer a critical illness, the financial position of everyone involved with the business could change dramatically.
Inevitably, business debts are 'joint and several' and supported by personal guarantees from the business owners over their own assets (i.e. their homes). This means that each owner is individually liable for all of the debt
Ask yourself and your business partners:
- Is it possible you would be forced to refinance or repay business loans if you or one of your business partners was to die, become disabled or critically ill?
- Is there any possibility that the overdraft facilities of your business may be withdrawn?
- Would your personal guarantees be called upon?
- Would your personal assets be at risk?
- Could your business continue to run and services its debts?
It is not commonly recognised that the death of a guarantor triggers an automatic default in most loan agreements - entitling the financial institution to call in the loan facility and proceed against a guarantor's personal assets.
If your business debt is secured by personal guarantees, these continue against the estate of a deceased guarantor. This means that your estate cannot be wound up until the guarantee is released.
Planning can help ensure that your business is able to continue meeting its financial obligations.
Appropriate insurance is the least costly and one of the most effective solutions.