Insurance Assurance: Check Before Your SBA Loan Closes

If you have an SBA loan now or are exploring getting one, you are familiar with all the details and documentation needed. Meeting an insurance requirement may be on the list, and for many borrowers, it’s a last-minute rush to obtain. Planning ahead at the front end can help avoid unneeded stress down the line. Read on and ask yourself these questions now, so you are ready when the time comes.

Does my lender require insurance to fund my loan?

The insurance you’ll need can vary based on your business, the assets you’re financing, where you’re located, whether you have employees, and your lender’s specific requirements. For example, your lender may require:

• Business personal property insurance – Protects your equipment, inventory, and other business assets from covered losses.
• General liability insurance – Covers customer injuries, property damage, and other common claims that can arise from everyday operations.
• Commercial property insurance (hazard insurance) – Protects the building itself, along with fixtures and structural elements, from covered losses like fire or storm damage.
• Commercial Flood – Protects your building, contents and equipment from flood damage caused by rising water, storms, or surface runoff.

Borrowers who wait until the week of closing to start shopping for coverage often find themselves with fewer options, and coverage secured under time pressure isn’t always the best fit for the business.

Quick tip: Get your lender’s insurance requirements early, then start shopping to compare your best options.

Does my Insurance Coverage Account for my Business Structure?

Whether a business is an LLC, S-corp, or sole proprietorship can affect how liability flows through to the owner personally, which in turn can affect what coverage makes sense. Some borrowers assume that forming an LLC alone is enough to protect personal assets, without realizing that a gap in business coverage can still create personal financial exposure depending on the circumstances.

Quick tip: Know how your business structure affects your coverage and if you need to make updates. To learn more, read this post.

Do I need to name anyone as an “additional insured” on my insurance policy?

An “additional insured” is another business added to your insurance policy so they’re protected too for covered claims.

“Additional insured” is typically required to be added in contracts where:

• Landlords want to be covered if a customer or employee gets hurt on the property.
• Franchisors want to be covered since customers see your location as an extension of their brand.
• Vendors or clients want coverage in case a problem arises with the product or service you provide.
• Lenders want to protect their financial interest in your business.

As this language is often buried within these agreements, it can be easy to miss, and oftentimes these misses don’t surface until someone asks for proof of insurance and realizes they were never added. This can leave your business exposed.

Quick tip: Before your loan closes, check your business contracts, including your loan documents, to see who needs to be added to your policy.

Does my Existing Coverage Still Fit my Business Today?

A policy that fit your business when you obtained insurance may not fit as well after key growth, like hiring employees, opening a new location, rolling out a new product, or adding equipment. Coverage that isn’t revisited periodically can leave gaps that only become apparent after a claim is filed and denied.

Quick tip: Ask yourself, “When was the last time I reviewed my policy(ies)?” If it’s been more than a year, or if you’ve hit key growth targets or milestones have been reached, it’s time for a coverage review.

The Bottom Line

Insurance is easy to treat as a box to check during the SBA loan process, but it protects the business the loan is meant to support. Asking yourself these questions early, and revisiting coverage as the business grows, can help reduce the chances of delays, denied claims, or unexpected personal exposure.

This content is for informational purposes only and does not constitute insurance, legal, or financial advice. Coverage needs vary. Consult a licensed professional.