Guide to premium finance for business growth
Owen Graham, Managing Director at Keys Premium Finance, discusses how premium finance can benefit business looking for alternative funding options.
The role of accountants in guiding UK business growth has grown exponentially, and when it comes to funding and managing cashflow there are a number of solutions which can benefit both large firms and small businesses alike. An often overlooked solution is premium finance.
In the UK, the insurance premium finance market is estimated to be worth over £8.5 billion per year - increasing in line with the general insurance market to £11.6 billion per year over the next five years. Some insurance policies are regarded as mandatory or “must have” products. Most businesses cannot generally operate without insurance, and having a financing solution specifically for this mandatory business cost can be very useful - particularly for small business and start-ups often struggling with cashflow.
The rise of premium finance
Premium finance has been available to business for many years, yet not all business owners and accountants are aware of how it can benefit them.
Where cashflow can be an issue, with premium finance, businesses can profit from a funding source that doesn’t affect their existing working capital facilities, banking facilities, or asset financing lines. This leaves existing capital to be invested elsewhere.
For a business operating within a high insurance risk industry, where insurance costs form a significant percentage of turnover, covering the cost of a premium in low-cost instalments is a practical solution.
Overall, premium finance should form an essential element of a business’s overall funding suite and sits comfortably alongside asset finance, invoice discounting, property finance, and overdrafts.
Advantages of premium finance
One of the main advantages premium finance can bring for businesses is the ability to accurately predict their cash flow, as it coincides with monthly income. Simplicity, security, and low transactional costs are all key to the success of this funding solution.
New start-ups often find that cashflow and the ability to raise capital can be a difficult task – the premium finance industry however has embraced the spirit of small businesses and premium finance brings benefits to SME’s and larger business alike.
It is a stand-alone, niche, working capital product that business can avail of irrespective of size.
Existing lending and securities provided to mainstream lenders are not affected, and it is a relatively inexpensive form of finance, that will compliment a business’s existing funding lines rather than replacing them or using them up.
Insurers will often have their own ‘in-house’ financing schemes, however, most businesses will have multiple covers with multiple insurers, so it often makes more sense for businesses to finance their various covers through a third-party financier, and pay one direct debit a month rather than have several direct debits coming out on different dates and over different timescales.
Another advantage of premium financing is that no security is taken to secure the facility other than the security provided by the insurance cover itself, leaving other business assets unencumbered, and without requirement for additional personal security to be taken.
Low transactional costs
Premium financing is usually written on a running account basis, allowing for renewals and mid- term adjustments to be accommodated using an existing facility without the need for a new finance line to be set up every time an insurance cost is incurred.
Low transactional costs mean that premium financing is a relatively inexpensive form of finance, and significant ‘up-front’ documentation fees or facility fees commonly found in other forms of finance are not charged.
There are alternatives to premium finance, however, solutions such as funding the premium via an insurer in house scheme can be restrictive and lead to multiple policies.
Why not check with your clients how their insurance costs are funded, and whether their cash flow could be benefitted by a premium financing arrangement?
About the author
Owen specialises in Insurance Premium Finance and Accountancy Fee finance. He was responsible for the development and evolution of these products for Keys Premium Finance. Owen graduated with a BSSc in Economics from Queens University Belfast.
About the company
Keys Premium Finance are an independent finance house based in Belfast and have been successfully transacting Premium Finance and Professional Fee Finance for over 25 years. Keys Premium Finance primarily work with Insurance Intermediaries and Accountants throughout the UK & Ireland.
Our team of experts have a wealth of finance and insurance experience, which allows us to deliver positive solutions to you and your clients. As well as premium finance we can provide fee finance with enhanced terms for ICAS members.
This blog is one of a series of articles from our commercial partners.
The views expressed are those of the author and not necessarily those of ICAS.