Businesses sometimes lend money to their owners. This practice is not uncommon. A problem arises if the owner/borrower dies. The business is then faced with the risk that the estate of the owner may not be in a position to repay the money owing to the business.
This puts the estate at risk of being sued by the business to recover the loan. The remaining owners are indirectly at risk. If the business cannot recover the capital, then the remaining owners suffer consequential damages.
Debit Loan Account Solution
The solution is to cover the debit loan account with a policy and to cede the policy to the business as security. Should the lender die, or become disabled, the policy proceeds of the policy can be used to settle the debt. This relieves the owner of the debt, and the business recovers its capital.
The content in this article was provided by Sanlam – a diversified financial services group, headquartered in South Africa, operating across a number of selected global markets.
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