Hazard Insurance for SBA Loans: A Complete Guide
Hazard Insurance for SBA Loans: A Complete Guide: Hazard insurance is a critical requirement for securing an SBA loan. If you are using property as collateral, you must have adequate hazard insurance in place. Failing to obtain or maintain this coverage can lead to loan rejection or even default penalties in the future.
This guide covers everything you need to know about hazard insurance for SBA loans, including its importance, requirements, and where to obtain it.
What is Hazard Insurance for an SBA Loan?
Hazard insurance, also known as commercial property insurance, protects businesses from financial loss due to property damage caused by natural disasters, accidents, and other unforeseen events. The SBA mandates this coverage to ensure the protection and maintenance of collateral used for loans.
While many insurers do not offer a policy specifically named “business hazard insurance,” you can typically find the required coverage under commercial property insurance. This type of policy covers:
- Physical buildings and structures owned or rented by a business.
- Contents inside the building, including equipment, furniture, and inventory.
- Business interruption coverage for lost income during repairs.
When is Hazard Insurance Required for an SBA Loan?
Hazard insurance requirements vary depending on the type of SBA loan you are applying for:
SBA 7(a) Loans
- Required for all assets used as collateral on loans greater than $500,000.
- For loans of $500,000 or less, hazard insurance is required only on real estate acquired, refinanced, or improved using SBA funds.
- For non-real estate collateral, lenders determine insurance requirements based on their internal policies for comparable non-SBA loans.
SBA 504 Loans
- Hazard insurance is required for all property financed by an SBA 504 loan.
- For projects over $500,000, hazard insurance is mandatory on all pledged collateral.
- For projects under $500,000, hazard insurance is required only for real estate assets financed by the loan.
SBA Disaster Loans
- Economic Injury Disaster Loans (EIDLs) exceeding $25,000 require hazard insurance if they are secured by collateral.
SBA Flood Insurance Requirements
If your collateral property is located in a flood hazard area, you must also purchase flood insurance covering the full value of the property.
- SBA microloans require flood insurance but do not require hazard insurance.
Where to Get Hazard Insurance for an SBA Loan
Several business insurance providers offer commercial property insurance that meets SBA requirements. Comparing quotes from multiple insurers can help you find the best coverage at the lowest cost.
Here are some top-rated providers:
Next Insurance
- Best for: Quick commercial property insurance coverage.
- Offers fully online policy purchasing with a fast application process.
- Includes business interruption insurance, which covers lost income during repairs.
Chubb Small-Business Insurance
- Best for: Businesses needing a Business Owner’s Policy (BOP).
- BOP includes commercial property insurance, general liability coverage, and business interruption protection.
- Automated coverage assistant helps businesses earning under $1 million in revenue buy policies online.
Nationwide
- Best for: Businesses that need both hazard insurance and flood insurance.
- Works with independent agents to provide National Flood Insurance Program (NFIP) policies.
- Offers a range of business insurance options, including property insurance and commercial liability coverage.
Cost of Hazard Insurance for an SBA Loan
The cost of commercial property insurance varies depending on factors such as property value, location, and risk factors. According to Insureon, the median cost for a policy with a $60,000 limit and $1,000 deductible is about $67 per month.
Final Thoughts
If you are applying for an SBA loan, obtaining hazard insurance is a critical step in securing financing. Ensure your policy meets SBA guidelines to avoid delays or disqualification. By comparing different insurance providers, you can find an affordable policy that protects your business assets while complying with SBA loan requirements.
For expert guidance, consult an insurance agent who specializes in business policies. With the right coverage, you can safeguard your business and confidently move forward with your SBA loan application.