Insurance producers and financial advisors: Did you know that local community banks and credit unions are a great resource for disability insurance referrals? Both are helping to reverse the decline of small business loans issued over the last decade. As lending institutions continue to tighten their internal risk assessment reviews, small businesses face greater adversity in securing loans to grow their business.
With larger banking institutions focusing their resources on businesses with an abundance of corporate bonds or stock proceeds, community banks and credit unions are seeking alternative methods to assist the small business owner.
One longstanding method is to indemnify the loan against the death of a small business owner. Contract language of this nature is quite common and found in most small business loan agreements.
Since a small business owner has a 30% greater chance of default from a disability versus death, we’re witnessing the implementation of disability insurance loan contract language on a greater number of small business loans issued through community banks and credit unions.
Lenders are able to manage default risk through the assignment of a Business Loan Indemnification disability policy. Transferring this risk to an insurance carrier increases the chances of loan approval for the small business owner.
The small business owner benefits by keeping their business operating during a period of disability. Employees, customers and the lender are comforted that a contingency plan is in place to maintain goodwill, credit ratings and financial stability.
And the advantages to the financial advisor arrive through referral relationships that provide lead generation and cross selling opportunities with a client whose business is in a growth mode.
Local community banks and credit unions are the ideal market for business loan protection referral arrangements. With over 7,600 community banks nationwide, they tend to have a greater percentage of their assets tied to small business loans. They rely heavily on relationships with community members and may choose to extend loans to local small business owners who may have otherwise been deemed too risky by larger banking institutions.
A Business Loan Indemnification policy helps ensure payments for business loans continue if a borrower incurs a total disability. For the financial institutions funding business loans, this protection can mean the difference between continued revenue and financial loss.
To explore this market in greater detail and obtain assistance with marketing approach strategies, contact your local DIS office at 800.898.9641. Also check out our case study on bank loan disability insurance here.