Businesses need their credit lines to do business. The current credit crunch resulting from the economic crisis of 2008 has made many businesses appreciate this business essential. The limitation of credit during this crisis was due to the banking problems. However, this credit crunch has been a awake-up call to all businesses. Credit is an integral part of day-to-day operations.

Other than these unusual times, what could cause a credit crunch for businesses? Often, available credit is based on personal relationships between an employee and the creditor. The creditor may consider an employee to be responsible for the profits that will enable the business to repay any loans. Although this personal relationship is often with an owner or senior executive, it is sometimes based on others – a star salesperson, an organized and efficient office manager, an inspiring supervisor or foreman, or an employee who is a respected community worker. Various employees may provide that key relationship that reassure the creditors of a business.

When valuing key employees, employers sometimes take the employee’s contribution to business credit for granted. As today’s crisis is teaching everyone the necessity of good and available credit, the value of an employee to business credit lines must be considered. If a key employee suddenly died or became disabled, would the business’s creditors hesitate to continue credit? How much cash would be needed to bridge the difficult time following the employee’s loss to reassure creditors?

One of the first principles of financial planning for both individuals and businesses is to protect your existing assets and newly acquired assets. Credit relationships are a valuable asset. They are difficult to acquire, and when acquired, should be protected. Key person insurance can protect businesses from the loss of a key person. Businesses usually consider the effects of a key person on sales or profits, but often neglect to consider the key person’s loss on the business’s credit availability.

PlanLab has a Key Person module that helps to guide business owners through the process of considering the impact and value of a key person to the business. It helps the business owners consider all aspects of the employee’s effect on the business, including the relationship with creditors. 2008 has been a difficult year for businesses, and everyone needs to learn from the experience. One lesson is the value of available credit and the necessity to protect the business’s credit by considering a key person’s effect on the business’s credit.

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