When you’re getting an SBA loan, it’s important to understand what hazard insurance is and what role it plays in your overall protection. Hazard insurance protects your business from losses caused by events like fire, theft, or natural disasters. Without this coverage, you could be on the hook for tens of thousands of dollars in damages. In this guide, we’ll explain what hazard insurance is and how it can help protect your business.
What is Hazard Insurance for an SBA Loan Table of Contents
What is Hazard Insurance for SBA Loan?
Essentially SBA business hazard insurance is insurance that protects property from danger caused by the dangers that are covered or the property. But what is Dangerous Insurance? It is just a name to describe insurance that covers a range of business and life threatening scenarios.
Every business that takes out a loan needs business hazard insurance cover.
Do You Have Enough Hazard Insurance?
The new rules require you to have 80% hazard insurance for the entire loan amount to avoid losses.
Nonetheless, it is important to insure 100% of your business properties value with risk-related coverage to make sure the entire business assets will get replaced.
Does The SBA Require Hazard Insurance?
The SBA has made it mandatory for all SBA loan holders to have adequate cover and protection from potential losses. For the duration of a borrower’s mortgage, the loan is secured against the value of the collateral assets he or she has.
Why Does The SBA Require A Risk Insurance Policy For Eidl Loans?
Founded by the Federal Bureau of Economic Affairs the government provides loans to companies and individuals called EIDL loans. As with every other secured bank loan, a borrower’s collateral is protected against unanticipated events that may occur during an emergency situation.
For these reasons the Federal Government requires every loan applicant to acquire hazard insurance within 12 months of getting their loan. A refundable security deposit is required for all loans.
How Much Insurance Coverage Do You Need?
The SBA requires 80% coverage of all loan types.
Most people advise you to protect 100% of your business assets. Let’s say you own the buildings. Total assets are worth $5 million. We say that your commercial property coverage reaches a maximum of $4 million. If something occurs and destroys all buildings or everything inside, you will lose $1M.
The business hazard insurance provider will tell you whether the amount of insurance you buy must be a total amount of your SBA loan.
Is It Possible To Get Hazard Insurance If You Don’t Own The Property?
Technically not, but you have rental insurance that covers you if you are exposed to an incident.
Those who use the term hazard insurance are simply referring to homeowners insurance. You can only buy homeowners insurance for an existing home.
Renters insurance can provide you with the right policies and it is the one you need if you don’t own your home.
What If My Business Is Home-Based?
If your business is home-based you should purchase homeowners insurance.
Ensure that the insurance company includes your business name in its policies.
You need renters insurance policies that cover the same coverage if you are leasing the house in which you’re living and business. According to the SBA, the company wants people to have 80% coverage from its assets for all SBA loans.
What Other Types Of Business Insurance Should You Consider?
Sometimes you may be required to purchase specialized coverage when a business is located in States that have greater risks of catastrophes such as an earthquake.
For instance, when the general policy does not cover the damage caused by hurricanes or floods.
If you are based in California, you must have specialized coverage for earthquake damage.
Insurance companies will no longer provide general protection for anything in a highly riskier region until you have pre-paid for specialist insurance.
Here are some popular types of business insurance:
- Commercial Property Insurance (Business Property Insurance)
- Business Interruption Insurance
- Earthquake Insurance
- Flood Insurance
- General Liability Insurance
- Product Liability Insurance
- Personal Property Insurance
- Real Estate Insurance
- Equipment Breakdown Coverage
- Professional Liability (Errors and Omissions) insurance
What is a SBA Loan?
The SBA (small business administration) Loan is a long-term, low-interest loan for small businesses. The loan is guaranteed by the United States Small Business Administration (SBA). A business can use the proceeds of an SBA Loan for a variety of reasons, including purchasing land or buildings, starting or expanding a business, refinancing debt, and more.
What is The Difference Between SBA Loans?
SBA loans are loans that support businesses up to 80% of their revenue. Sometimes, i.e. with the EIDL program, this happens directly through SBAs.
Here are some typical SBA loan options:
- The SBA’s Export Working Capital Loan
- The Patriot Express Loan
- The Disaster Assistance Loans
- The CAPLines Program
- The Microloan Program.
How Much is Hazard Insurance for SBA Loans?
The cost of hazard insurance varies depending on the size and location of your business, so it’s best to get a quote from a local insurer. Generally, though, you can expect to pay between $500 and $2000 per year for coverage.
How to Get Hazard Insurance for SBA Loans
Always shop around for the best offers for your hazard loan insurance. Ask your SBA loan broker for their recommendation.
Once you get the price from them, jump online and look at some other options now that you have a price to compare with. Always make sure you compare rates for your hazard insurance policy.
If you know a business owner that is planning on apply for an SBA loan, make sure you share this article with them and make sure they are covered!