Small Businesses Use Life Settlements to Survive Crisis

Here is a really interesting article that I found on Life Settlements becoming a tool for small businesses to use as a "life vest" in the current economic crisis. It generally provides the ability to increase capital while avoiding increasing the debt structure of the company or forcing the liquidation of company assets more vital to ongoing business.




The article was found on InvestmentNews.com and it reads...:



Cash-strapped small businesses looking for a lifeline may find one in an unlikely asset — life insurance policies on the companies' owners.

While life settlement experts caution financial advisers that tapping into insurance policies is fraught with tax and estate-planning risks, some business owners may be tempted to sell their policies if other financing options are unavailable.

"The market for life settlements is small and illiquid, and using it puts an estate-planning tool at risk for very short-term liquidity issues," warned Kimberly Kitts, founder and president of Marquis Consulting LLC, an Orleans, Mass.-based company that specializes in working with business owners.

For one company, however, life settlements have proved helpful.

X-Rite Inc., a Grand Rapids, Mich.-based marketer of the Pantone color system — used widely in the publishing and printing industries —recently needed cash to pay down more than $340 million in outstanding debt and help fund a $175 million recapitalization.

With credit short and cash tight, the company looked at the life insurance policies it held on its founders, who are in their 80s. Annual premiums on the buy-sell policies amounted to $6.7 million, straining X-Rite's budget.

Robert Finfer: Life settlements are an option when assets are illiquid.
The company decided to sell the policies, and by early November received about $20.6 million through life settlements. "That is a significant amount of cash when you're talking about illiquid assets," said Robert Finfer, president and chief executive of Integrity Capital Partners, the Bethesda, Md.-based life settlements broker that helped X-Rite find purchasers for its policies.

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