Hazard Insurance for SBA Loans: Protect Your Business

Hazard insurance for SBA loans is a requirement for these government-backed loans for business owners. If you’re pursuing an SBA loan for equipment or facilities to run your business, it is important that you insure your equipment as it is collateral for the loan. Because if something bad happens, you’ll need capital to get back on your feet.

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What is hazard insurance for SBA loans?

Should your business sustain damage or loss from an unplanned event, like fire, theft or a historic storm, hazard insurance helps you recover with capital for repairs and replacement. It can be for personal property, tools, equipment, furniture or inventory — things you need to recover and resume your business.

Your lender will be looking for adequate coverage to protect their ability to recover the loan and meet the requirements of the SBA. That means the type of insurance policy will depend on the nature of your business and what you need to operate.

• For home-based businesses, your homeowner’s policy (or renter’s policy) could be tailored to meet the hazard insurance requirements, covering the structure and any necessities used to operate the business.
• For something like a light manufacturing firm or a retail shop, business property insurance would cover the cost of repairing or replacing your facility as well as your equipment and inventory.

All borrowers must obtain and maintain hazard insurance for the life of the loan. Talk to your independent insurance agent to maintain the right level of insurance for the life of the loan.

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Why does SBA require hazard insurance?

Why hazard insurance? Simple answer: It’s common practice with collateral loans. If your business is damaged or destroyed by theft, fire or storms, you can’t operate or pay your bills. Then you might default.

But if you’re familiar with the workings of the SBA lending program, this requirement makes even more sense.

SBA loans are guaranteed by the federal government. The program is targeted to assist lenders in getting comfortable with borrowers who are not quite ready for conventional loans, due to a variety of reasons. The business may lack experience, have limited capital, limited collateral or a lack of a strong guarantor.

Viewed through the SBA lens, hazard insurance is a safeguard for your business — and taxpayer dollars.

What happens when you file a claim on your SBA loan?

It’s important to note that the lender will be the Lender loss payee on the hazard insurance policy. As you replace and repair the insured collateral, make sure you understand the requirements so they can release the proceeds to you. Check in early and often to make sure you're on the same page. Be prepared to show the required documentation of repairs and other expenses.

Ready to grow in Minnesota?

When it’s time to expand and build your Minnesota-made business, Minnwest Bank has all the resources and expertise you need to get on the right path.

• Our SBA-approved lenders can help you get a loan tailored to your businesses’ needs. Learn more about our industry-leading program.
• Additional potential insurance needs for SBA borrowers include business interruption, key person life insurance and disability insurance. A knowledgeable insurance agent is a critical member of your management team.

• Minnwest Bank's insurance agents gather quotes from multiple carriers and provide expert advice. With our guidance, you’ll identify the best tailor-made coverage, coverage that meets SBA requirements that also protects what you’ve worked hard to build.

Get started today by reaching out to one of your trusted hometown experts. Minnwest Bank has branch locations in convenient locations throughout Minnesota and southeastern South Dakota.