Hazard Insurance for an SBA Loan: Do You Need It?
If you use a property as collateral for an SBA loan, you need hazard insurance that covers the property.
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You need hazard insurance on any property that you use as collateral for an SBA loan. If you don’t have hazard insurance — or if you fail to maintain the property in accordance with the SBA’s requirements — you may not be able to get an SBA loan, now or in the future.
Hazard insurance is a type of business insurance that can help you repair a building your business owns after it’s damaged. Most businesses should have this coverage, especially if they own or rent property or have valuable inventory or equipment.
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What is hazard insurance for an SBA loan?
Business hazard insurance is a policy that pays out when buildings are damaged in accidents or natural disasters. The SBA requires hazard insurance on buildings used as collateral for SBA loans; this is to ensure that damaged property can be repaired and that it will maintain its value.
Most insurance companies don’t sell a policy called “business hazard insurance.” Instead, look for commercial property insurance. This type of policy covers the buildings your business owns or rents, as well as the contents inside. It can also help make up for the income your business loses while making repairs.
When is hazard insurance required for an SBA loan?
You need business hazard insurance on property that serves as collateral for an SBA loan. Specific requirements, however, vary by loan type:
SBA 7(a) loans
The SBA requires hazard insurance for all assets pledged as collateral on SBA 7(a) loans greater than $50,000.
SBA Express and Export Express loans are the exception to this rule. Lenders do not have to require hazard insurance on Express loans — but if they don’t, they must provide the reason why in the loan file.
SBA 504 loans
For 504 projects greater than $50,000, the SBA requires hazard insurance on all assets pledged as collateral.
SBA disaster loans
SBA Economic Injury Disaster Loans worth more than $50,000, which have to be secured by collateral, require hazard insurance.
SBA flood insurance requirements
If your collateralized property is in a flood hazard area, you’ll also need a flood insurance policy. You'll also need flood insurance for any personal property (equipment, fixtures or inventory) that is collateral for the loan — if that property is in a building which is located in a flood hazard area and that building is also collateral for the loan.
The insurance coverage must be at least equal to the outstanding principal balance of the loan or the maximum limit of coverage made available under the National Flood Insurance Act of 1968, whichever is less.
SBA microloans require flood insurance, but not hazard insurance.
Where to get hazard insurance for an SBA loan
You can get hazard insurance for an SBA loan from most business insurance companies. Insurers typically sell commercial property insurance, and you may be able to get a quote and buy business insurance online in a matter of minutes.
A commercial property insurance policy with a $60,000 limit and $1,000 deductible comes with a median premium of $67 per month, according to online business insurance marketplace Insureon.
Getting multiple quotes can help you find the best business insurance coverage at the best price. Here are a few of NerdWallet’s picks for where to get hazard insurance for an SBA loan.
Next Insurance
Best for: Getting commercial property insurance right away.
Next Insurance sells business insurance policies online to businesses of all sizes, in a transaction that only takes a few minutes. Next’s commercial property insurance policy includes business interruption insurance, which can help make up for your business’s lost income after a disaster.
Chubb Small-Business Insurance
Best for: Entrepreneurs who need a business owner’s policy.
Commercial property insurance is often sold as part of a business owner’s policy, which also includes general liability insurance. Chubb’s BOP is one of the best on the market because it includes business interruption insurance, extra expense coverage and coverage for accounts receivable records. If your business earns less than $1 million in annual revenue, you can buy a policy online with the help of an automated coverage assistant.
Nationwide
Best for: Businesses that also need flood insurance.
If you’re in a region where you need flood insurance, you can work with an independent insurance agent to buy a National Flood Insurance Program policy from Nationwide. You can also get business property insurance coverage and other commercial insurance coverage you need from this insurer. Use Nationwide’s website to find a local agent who sells their policies.
State Farm
Best for: Working with an insurance agent.
If you prefer in-person support when you shop for insurance, a State Farm agent who sells business insurance near you can help you get business property insurance and most other types of coverage you might need.
Save up to 30% on business insurance
NerdWallet Small Business helps you get the right coverage based on partnerships with more than 20 national carriers. Get quality customer service and guidance through our partner, Turbo.via Turbo
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