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How insurance premium funding can help your cash flow

Updated: Feb 21, 2022

How insurance premium funding can help your cash flow

Insurance premiums paid in an annual lump sum can put a serious strain on cash flow for small and medium business (SME). The majority of SMEs arrange their cover through their insurance broker. The challenge then is how to pay for the appropriate insurance cover, without impacting their business’ cash flow.

There is a solution to help, in the shape of insurance premium funding, also known as premium financing.

How insurance premium funding works

With insurance premium funding (IPF) cash flow that would normally be tied up in insurance premiums, is released and can be invested back into your business. It offers a way to reduce the financial burden, by spreading the cost of insurance premiums, over the course of the year.

IPF can provide a number of benefits to your business insurance premiums including:

Distributing the upfront cost

Instead of being hit with a large bill all at once, you can balance the cost throughout the year, making budgeting and cash flow forecasting much easier.

Make easy monthly instalments

Once you have organised your IPF loan, you will know exactly how much you need to budget for each month, in order to cover all your insurance needs. This allows you to pay your annual insurance premiums in monthly instalments that better suit your business cash flow needs.

Fix your interest rate

It’s reassuring to know that your loan will have a fixed interest rate. There will be no unpleasant surprises with your monthly cash flow, giving you the freedom to get on with the day to day of running your business.

Simplify your accounting

You will be able to aggregate a number of separate insurance policies into a single loan. This will make your accounting less complicated, since you only need to make one monthly payment instead of several single payments.

Understand which loan interest expense are tax-deductible

While IPF does mean you will incur interest at an agreed interest rate, you may be able to write off the interest and fees you pay as a business expense at tax time. Your accountant or tax adviser will be able to confirm whether this is the case in your particular situation.

Release your working capital and stay protected

In these uncertain times there’s more need than ever for a steady source of working capital to pay employees, purchase inventory and cover overhead expenses. Funding your insurance premiums puts you back in control of your business cash flow. You might even be able to reinvest the cash in assets to grow your business.

Stay in touch with your broker

Don’t wait until your next annual premium is due for payment. Call your finance broker today to find out how insurance premium funding could help your business.

Original post by Bank of Queensland



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