Whether you’re considering taking out an SBA loan to start your small business or if you’re thinking about taking your business to the next level with the support of additional funding from a Small Business Administration (SBA) loan, you should understand the insurance requirements these loans carry.
Fortunately, SBA’s insurance requirements are in the best interest of business owners because business insurance provides a valuable safety net that can keep a company in business despite catastrophes.
Reasons for SBA Loan Insurance Requirements
Lenders need to be careful about the risk they assume when writing loans. That’s why they require so much information. If a lender wrote loans to anyone who asked, they’d risk a large portion of their borrowers defaulting on the loan. When someone defaults, it’s unlikely that the lender will recoup their losses.
Insurance is one way that a lender mitigates their risk. It’s in the lender’s best interest if the borrowing business stays in operation.
Additionally, the SBA requirements often help a business owner comply with state laws. Sometimes, business owners may neglect to purchase the type of insurance required for their business and locale. The SBA requires insurance coverage that keeps the company in compliance.
Types of Insurance Required by SBA Loans
In addition to getting the necessary certifications and licenses for your business, you’ll need the right insurance. While the specifics concerning what insurance products your business needs to carry to qualify for an SBA loan vary, the following are the possibilities.
General Liability Insurance
General liability insurance protects businesses from paying injury claims if someone is injured on your property or by your products.
This coverage will also protect you from losses associated with property damage you or your employees cause. For example, a contractor working in someone’s home could break a pipe that leads to flooding. Without general liability insurance, the company would have to pay for the repercussions out of pocket.
Hazard or Property Insurance
Hazard insurance is also known as property insurance, and it provides coverage for the building you rent or own. It also covers your equipment, supplies, and inventory. As important as streamlining your inventory is protecting your inventory.
It’s similar to homeowners insurance, except it applies to business property. Even if your property is outside your business’s base, it’s protected. For example, if your construction equipment is stolen on a job site, it will still be covered.
Professional Liability Insurance
This type of coverage is also known as errors and omissions coverage. It protects your company from losses associated with added expenses or lawsuits because something happened due to your mistake or an accident.
Many business owners combine this type of coverage with general liability insurance for a comprehensive way of protecting the company.
Commercial Car Insurance
If you use a car for company purposes, you’ll likely need to carry commercial auto insurance to be eligible for an SBA loan.
If you only carry personal auto insurance, your insurer will likely deny a claim for damage that happened when the vehicle was being used for business purposes. The right insurance policy differentiates between getting the necessary settlement to remain operational and paying out-of-pocket and risking your solubility.
Best Ways to Get Business Insurance
Comparing car insurance quotes is one of the best ways to find inexpensive car insurance rates. The same is true for comparing business insurance rates. Comparing rates can help you narrow your list of contenders.
In addition to the cost, you should investigate the insurance companies’ financial stability and customer service reputation.
When looking at options for an SBA loan, ensure you have the insurance coverage required before applying. That way, your loan funding will proceed smoothly, and you can take the next step you’ve been planning.