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Small Business Digest


Experts Suggest Innovative Ways Of Avoiding the "Credit Crunch"

Small business owners nationwide are finding that the credit crunch has made it increasingly difficult to obtain the financing they need to grow their business. And those that can get financing are facing rising interest rates that increase the cost of doing business.

Bill Zimmerman, a retirement solutions consultant at The Hartford, suggests that small business owners consider discussing the following with their financial advisor:

  • Take a 'flight to quality: As personal investments are often pledged as collateral to obtain business financing, business owners should take steps to reduce the volatility in their personal investment portfolios (i.e.: shift from small-caps and tech stocks to treasuries and blue-chips)
  • Carry less inventory: To make their balance sheets more appetizing to lenders, when possible, business owners should reduce inventory and hold more cash (or short term investments)
  • Pay down debt:  Now is a good time for small business owners to reduce their debt-to-equity ratio by paying off as much debt as possible

To help business owners identify and address key issues related to protecting their business, growing their assets and planning for their future, as well as identify the types of advisors to which they can turn for guidance, The Hartford has created The Business Owner's Playbook, which can be ordered or downloaded free of charge at

Another option that is often overlooked by small businesses is permanent insurance.  These policies, also known as cash value whole life policies, can be used for many purposes in addition to the basic life insurance one and are an asset that should not be ignored.

With a cash value whole life plan, the premium money grows on a tax-deferred basis and the policy's cash value is a bookable asset on the company's balance sheet – extremely important for a small company. 

A high early cash value contract can especially be beneficial.  With this type of plan, the premiums are much higher than a typical plan, but as a result the cash value is very high after only a year or two. 

This can provide cash assets that can be leveraged whenever the company needs it.  Many small businesses run in to financial trouble, but are unable to receive a loan from a bank because they are seen as a risk or don’t have the necessary collateral to be qualified for the loan. 
With a cash value policy, the company can instead go to the insurance company for a loan and quickly access their asset with no financial qualifications to meet. 

The insurance company will use the policy as collateral for the loan.  The business can gain much needed capital, while still leaving their money in the insurance policy. 

This means that they are then still gaining interest on the full amount in the policy, but have also been able to resolve their cash flow issues.

According to Brian Code, partner with Code Smith Financial, LLP (an office of the Levin Financial Group, a general agency of the Massachusetts Mutual Life Insurance Co.), this cash value can be accessed by the company or owner and used for many different situations, including:

  • Using buy-sell agreements
  • For down payments or loan interest
  • To pay pre-retirement survivor benefits to families of key employees/officers
  • During times when cash flow becomes an issue for the business
  • When a key employee leaves, becomes disabled, or retires
  • To support supplemental retirement benefits for key employees

Code offered one example of a situation where permanent insurance could offer a much greater benefit than a term life policy. 

Picture a small business that is owned jointly by five individuals and that is worth 10 million dollars.  The company purchases a whole life policy for each of the five owners, each with a value of $2 million. 

As the business continues to operate, that money is earning cash value in each policy.  Fast-forward a number of years, when one partner wishes to retire and wants the other four to buy her out.

The company can access the cash value in the plans to fund the buy-out without having to get a bank loan or otherwise jeopardize the company’s operations.

This is just one example of the ways in which a company can leverage the assets in their permanent insurance policies.  For more information on these policies, visit


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