Small business owners that have previously borrowed money can attest that actually being capable of repaying the loan is the core of credit worthiness.  They can also attest that the approval process significantly hinges on how risky the applicant appears.

Just because a new business has a seemingly valuable potential doesn’t mean things always pan out. In fact, new businesses are ofetn notoriouse for failing to live up to expectations. A business may launch with an innovative concept but will usually find that the road from concept to profits is long and hard.

One way to prove credit worthiness is by owning a life insurance policy, as this can show that the business owner has a financial commitment to his/her business and values that commitment.  In the eyes of the lender, the life insurance policy means that the business owner has left a viable way for their beneficiary to follow-through with any financial obligation to them.

When a life insurance policy is bought through the business, that makes it a business asset and like any other business asset, the insurance policy will become part of the balance sheet that lenders will look at. If a portion of the life insurance benefit is assigned to the lending institution, then the insurance can also be used as loan collateral.  As far as loans go, the cash value of the life insurance policy is another useful tool.  The cash value can be a guarantee against defaulting, as it can be borrowed against for payments.

The cash value of a life insurance policy can actually serve several purposes for the business.  Borrowing against it is quick and doesn’t require the business owner to be approved for a loan.  Additionally, borrowing against the life insurance policy is tax friendly and the cash value usually accumulates in a tax-deferred status, meaning there is no earning taxes while the policy is active.  In most cases, a withdrawal is not subject to taxation.  In the event more money is needed than has accrued in cash value, the business owner can usually brrrow against teh policy without triggering a taxable event.