Turn one annual insurance premium into manageable monthly payments.

Insurance premium funding pays your annual business insurance premium to the insurer upfront, and you repay the funder in monthly instalments over the policy year, usually 8 to 12 payments. Cover starts immediately and the business keeps its cash for trading. It is commonly used for large policies such as public liability, professional indemnity, motor fleet, plant and equipment, and industrial special risks. The funder takes the policy itself as security, so no other assets are involved.

Premium funding is quoted as a flat rate, such as 4 to 8 per cent of the premium, plus an establishment fee. Because you repay over roughly a year on a reducing balance, the equivalent annual interest rate is around double the flat rate, so a 5 per cent flat rate is close to 10 per cent per annum. Your broker shows both figures and compares them with the cost of paying the premium from an overdraft or line of credit instead.

Approval is usually quick and light because the policy itself is the security. Many funders approve premiums up to a set amount, often tens of thousands of dollars, with minimal checks and same-day turnaround, and only larger premiums require financial information. Businesses with past credit issues are often accepted. Your broker confirms what each funder needs for your premium size.

The interest and fees on premium funding for business insurance are generally tax deductible in the same way as the premium itself, because they are a cost of running the business. GST treatment follows the underlying policy. As always, confirm the treatment for your entity with your accountant.

Same day to 48 hours in most cases. Once you accept the funding quote, the funder pays the insurer directly and the policy is confirmed. It can be set up at renewal time or mid-term for a new policy. Because insurance renewals have fixed dates, tell your broker when the premium is due so the funding is in place before cover lapses.

Most general business insurance can be funded: public and products liability, professional indemnity, commercial motor and fleet, plant and machinery, contract works, industrial special risks, management liability and business packs. Funders prefer policies where a refund of unearned premium is available on cancellation, which is what secures their money. Some funders will bundle several policies from different insurers into one monthly payment.

If a policy is cancelled, the insurer refunds the unused portion of the premium to the funder, and any shortfall or surplus is settled with you. If instalments are missed, the funder can instruct the insurer to cancel the policy after a notice period, which would leave the business uninsured, so it is important to keep the direct debits funded. Your broker explains the cancellation and default terms before you sign.

If the premium is small and the business can comfortably pay it without disturbing cash flow, paying outright avoids the funding cost altogether. Premium funding is most valuable when the premium is large relative to monthly cash flow, when several policies fall due at once, or when the cash has a better use in the business, such as stock ahead of a busy period. Your broker compares the funding cost with the return on keeping the cash working.

Yes. Insurance premium funding spreads public liability, workers compensation and vehicle insurance premiums over monthly instalments instead of a lump sum at renewal, which suits cleaning businesses with large policies and thin margins. It is quick to set up and separate from other borrowing.