Businesses sometimes need additional money to improve their products and services. Whether you’re a startup or have been in the business for quite some time, but still need to apply for a loan, many factors can affect the approval of your loan. One of which is having business insurance. As you know, business insurance is one of the most crucial elements that can make or break your business. At the same time, it can significantly help when you’re planning to apply for loans.
So before applying for a loan, here’s a guide that can help you understand the importance of having business insurance when getting a loan.
Business Insurance to Lenders and Investors
As a part of the requirements when applying for a loan, lenders often consider the risk level of the businesses. For instance, if your business doesn’t have comprehensive business insurance, the lenders may decline your application. Here are some of the things you can do to increase your chances of getting approved:
1. Reduces risk for lenders and investors
Business insurance acts as a safety net for the lenders. Besides, they need to ensure that their investment will be recovered in case of unexpected situations, so ensuring that they have insurance can give them peace of mind.
2. Shows financial accountability
In some cases, having business insurance isn’t enough. Usually, you need to have comprehensive business insurance. Besides, having basic insurance may not be enough to cover everything a business needs when it encounters unexpected circumstances.
3. Protects assets and collateral
In some cases, lenders require collateral to approve a loan. If you have business insurance, you can also guarantee the safety of the collateral and the money you’ve borrowed from the lenders. In the end, both you and the lenders will have peace of mind.
4. Guarantees business continuity
Most business insurance comes with business interruption coverage, so when a situation comes that you need to close or pause your operations, you can have financial assistance to continue the operation for a few months, depending on the coverage of the insurance.
Types of Business Insurance That Can Help Secure Funding
In terms of having comprehensive business insurance, it should cover most factors that can help your business recover in case of unexpected circumstances. Here are some of the coverages to consider:
1. General Liability Insurance
One of the most common types of insurance businesses avail is general liability insurance. It protects against property damage, bodily injury, and legal disputes. So, no matter what kind of business you’re running, general liability insurance is a must.
2. Property Insurance
If your business has an office, warehouse, or any physical address, you should include property insurance in your policy. It ensures the safety of the assets and collateral you’ve presented to the lenders. So, in case of accidents or natural disasters, you can still get financial assistance.
3. Business Interruption Insurance
If something happens that forces you to pause the operations of your business, the business interruption insurance can provide the financial needs of your business until the operation returns. However, usually, it only covers a few months of rent, bills, and salaries, so you still need to work on the factors that can help with the return of your business operation.
4. Key Person Insurance
Does your business heavily rely on one person, such as a CEO or manager? Availing of key person insurance can be a game changer. This type of insurance compensates the company in case a crucial leader of the company gets injured or dies.
5. Workers’ Compensation Insurance
Whether you only have one or a lot of employees, workers’ compensation insurance should be on your list. Besides, it’s usually a legal requirement for every business, so there’s no reason why you shouldn’t add it to your business insurance policy.
6. Professional Liability Insurance (Errors and Omissions Insurance)
If your business offers services, availing of professional liability insurance should also be included in your policy. It covers the finances for lawsuits, healthcare, and consultations in case you’ve made errors while providing these services.
7. Cyber Liability Insurance
Nowadays, businesses rely heavily upon digital versions of things, including payments, data collection, and advertising. Although these tools can help companies become more productive, they can also take everything away in an instant. By availing of cyber liability insurance, you can protect your business from hackers and data breaches. Of course, you still need to avail of a firewall and antivirus and ensure to change passwords as often as possible to add an extra layer of protection.
Leveraging Business Insurance When Seeking Funding
Understanding the benefits of having business insurance, and the types of insurance you should get can significantly help when seeking funds. But here’s how you can improve your chances:
- When submitting a business plan, don’t forget to highlight your business insurance policy.
- Avoid getting the basic insurance coverage limits
- Highlight the comprehensive insurance coverage
- Provide proof of authenticity of your business insurance coverage
Final Thoughts
Business insurance isn’t just about securing financial assistance in case of unexpected circumstances. It can also help with getting loans and additional investments for the improvement of your business. So, if you’re looking for a way to improve your business through loans, don’t forget to mention your business insurance.
