SBA Loan Insurance Requirements

The Small Business Administration (SBA) requires businesses to have certain types of business insurance in order to protect the SBA's interest in the loan.

We’ve detailed the SBA Loan Insurance Requirements set for businesses that are seeking loans.

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Types of Insurance Required to Get an SBA Loan

The SBA requires certain insurance coverages before they will give you a loan. These requirements can vary depending on the type of business you run and the loan you choose. 

In general, the SBA may require the following types of insurance:

Hazard Insurance

Hazard insurance covers your business's owned or rented building and personal property, tools and equipment, inventory, furniture, computers, and valuable documents.

For example, if a fire damages your business' building, hazard insurance can help cover the repair costs.

If you're applying for an Economic Injury Disaster Loan (EIDL) from the SBA, which is available to small business owners of nonprofits and those in agriculture across the U.S., you may need hazard insurance.

Property Insurance

Commercial property insurance helps protect your business and its physical assets, including your building, equipment, tools, inventory, furniture, and personal property. This insurance coverage is especially important for home-based businesses. 

If you're applying for an EIDL loan from the SBA that is greater than $25,000, you'll likely need personal property insurance to cover the collateral required.

General Liability Insurance

General liability insurance covers your business from property damage and bodily injury claims. 

For instance, if a customer slips and falls in your store, this coverage can help pay for their medical treatment. 

Many SBA loans that require collateral will likely require general liability insurance to help cover the property and pay to replace it if it's damaged. 

Flood insurance may also be required if your business is in an area that's prone to flooding.

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Professional Liability Insurance

Professional liability insurance can help protect your business from errors or omissions that you or your employees make on the job. 

If your business provides professional advice or services to your clients, the SBA will likely require you to have professional liability insurance. 

For example, if your accountant provides inaccurate financial advice to a client and they sue your business, this coverage can help pay your legal costs.

Workers' Compensation Insurance

Workers’ compensation insurance coverage provides benefits to your employees if they have a work-related injury or illness, including help paying for medical treatment, replacing lost wages if your employee needs time off work to recover, disability benefits, and paying for funeral expenses. 

If your business has employees, the SBA will likely require you to carry coverage that meets your state's minimum requirements.

Liquor Liability Insurance

If your small business sells, serves, or distributes alcohol, liquor liability insurance is important. 

This coverage can help pay for claims of bodily injury or property damage caused by an intoxicated person after they have alcohol from your business. SBA loans typically require this coverage.

Additional Coverages Needed to Qualify for an SBA Loan

In addition to the above coverages, your business may need additional policies in order to get an SBA loan. This can depend on the loan amount and the type of business you run. 

Some other coverages you may need include term life insurance, product liability insurance, flood insurance, and real estate insurance.

It's important to note that business owners are personally liable for SBA loans. This means that you're responsible for repaying the loan.

If you're ready to get a small business loan from the SBA, follow these steps:

1. Research which loans you need from the SBA.
2. Make sure you get the right small business insurance for that loan.
3. Check with your bank or credit union to see if they offer SBA loans. If they don't, you'll want to find a lender that does.

SBA Loan Requirements

Besides the types of business insurance required by the SBA, the Small Business Administration also has certain insurance requirements that must be met to qualify for an SBA loan.

• The SBA requires businesses to have the required insurance in place before they can receive an SBA loan.
• A business must maintain the required insurance throughout the term of the SBA loan.
• Businesses must provide proof of the required insurance to the SBA.
• The SBA may require businesses to have additional insurance, depending on the specific SBA loan that is being applied for.

If you are a business owner who is considering applying for an SBA loan, you should contact your insurance agent to discuss the SBA loan insurance requirements.

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