Small Business administration requires you to have business hazard insurance before you qualify for their loans. But what is business hazard insurance? Have you got adequate coverage for your small business? And if you don’t, where can you get hazard insurance for an SBA loan? These preceding questions and more are what this piece intends to cover comprehensively. So read on to know everything concerning business hazard insurance for SBA loans.
What is Hazard Insurance?
Businesses of all sizes need coverage of some sort to protect them against emergencies. For example, floods, hurricanes, wildfires, and cyber-attacks can severely impact your business operations. But if you prepare for emergencies, you will quickly recover and resume operations should a disaster occur.
Hazard insurance is the coverage that helps protects businesses or homes from structural damages. The insurance coverage covers the costs to replace or repair the equipment, inventory, and furniture you use to run your company when there’s destruction due to an accident.
Business hazard insurance, also known as business property insurance, is crucial for your business because some landlords or mortgage lenders may require it. Moreover, it’s a precondition for accessing government loans such as Economic Injury Disaster Loans (EIDL).
Business property insurance works like any other insurance coverage. You pay your monthly premium based on your assets and how much you want.
Do You Need Hazard Insurance For an SBA Loan?
Every money lender wants the assurance that they can always get back their money when it’s due. With this in mind, if you’re interested in getting a Small Business Administration loan of any type, you will provide evidence that your business is covered by hazard insurance.
The essence of insurance coverage is to help minimize risk and increase the chance of recovery on the SBA loan. For example, if your business becomes damaged by flood, storms, or fire, there’s a high possibility that it will fail to operate. Hence you might default in paying back the borrowed money if your business is not adequately insured.
Some standard policy coverages that SBA may require are: hazard insurance general liability insurance, professional liability insurance, property insurance, workers’ compensation insurance, and liquor liability insurance.
Hazard insurance helps protect your small business-owned or rented building. If, for example, fire destroys your business building alongside the content in it, hazard insurance can help you cover repair or replacement.
General Liability Insurance
This insurance helps cover your small business against property damage and bodily injury. In addition, if a customer sustains injury in your store, this policy coverage can help pay for their medical treatment.
As the name suggests, commercial property insurance protects your business’s physical assets. It covers the cost of repair and replacement of damaged properties due to fire, theft, and more.
If you are planning to get a loan greater than $25000 from SBA, especially EIDL loans, you must have property insurance as such loans require collateral. And the SBA will likely require you have property insurance to cover the collateral you want to use to secure the loan.
Professional Liability Insurance
This insurance coverage helps protect your business against negligence or error you or your employees make when performing your job. For example, if your accountant provides misleading or inaccurate financial advice to a client and they sue your business, this coverage will indemnify your company from all the legal costs.
If your business provides professional service to clients, the SBA will require that you have professional liability insurance to qualify for a loan.
Workers’ Compensation Insurance
If you have many hands piloting the affairs of your business, you might need workers’ compensation insurance. This policy coverage benefits your employees who may sustain a work-related injury or illness. For example, this coverage helps pay for medical treatment, compensating for lost wages if your employee needs some time off to recover, among other things.
Additionally, the SBA might require you to get your employees covered by meeting your state’s minimum requirements.
Liquor Liability Insurance
If you deal in alcohol, you must have liquor liability insurance. This coverage indemnifies your company against claims of bodily injury or property damages caused by an intoxicated person after they have alcohol from your business. Similarly, SBA loans also require this coverage.
Where Can You Get Hazard Insurance For an SBA Loan
You can get hazard insurance for an SBA loan from most business insurance companies, including Chubb, USAA, Allstate, Nationwide, and more, that typically deal in commercial property insurance. However, when looking for where to get hazard insurance for an SBA loan, it would help if you get multiple quotes to know the best business insurance coverage at the best price.
Consider the nature of your business, business assets, and potential risk before making a choice. The best practice is to speak with an insurance broker before buying hazard insurance or your business insurance coverage.
How Much Should Hazard Insurance Cover?
Generally, the SBA requires 80% coverage. However, the requirements for each SBA loan vary as different lenders have varying stipulations. You should provide 100% coverage of the value of your business assets if you can, as this brings the best value.
For instance, if the value of your business building, including the assets in it, is $6 million and the limits of your commercial property insurance are $5 million, if a disaster occurs and destroys your entire building alongside the content, you’re already out that $1m.
Reaching out to an insurance company will help you determine the amount of coverage needed to provide %100 coverage to your business. Should a worst-case scenario occurs, comprehensive insurance coverage ensures you will be able to replace everything.
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