Insurance Requirements to Get an SBA Loan in 2024

12 June 2024
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Requirements for SBA Loans across the US:

  1. Operating Business:

    • Your business must be an operating entity.
    • It should operate for profit and be physically located in the U.S. or its territories.
  2. Size Standards:

    • Businesses must meet SBA size standards based on their industry and revenue.
    • These standards define whether a business qualifies as a small business.
  3. Ability to Repay:

    • Applicants must demonstrate the ability to repay the loan.
    • Lenders assess your financial stability and repayment capacity.
  4. Creditworthiness:

    • Good credit history is essential.
    • Lenders evaluate your creditworthiness to determine loan eligibility.
  5. Reasonable Terms:

    • The business should be unable to obtain credit on reasonable terms from non-federal, non-state, and non-local government sources.

Additional Considerations for California:

  1. Location:

    • Your business must be located in California to access SBA assistance specific to the state.
  2. Disaster Assistance:

  3. Specific Loan Programs:

Remember that each loan program may have additional criteria, so it’s essential to discuss your specific situation with an SBA-approved lender. If you’re in California, consider reaching out to local SBA centers or certified development companies for personalized guidance.

Other Possible Insurance Requirements

Depending on the nature of your business and the assessed risk to the lender, additional insurance policies might be required. Here are some that may apply:

  • Liability Insurance
  • Product Liability Insurance
  • Malpractice Insurance
  • Disability Insurance
  • Workers’ Comp
  • And other state specific insurance requirements

Why should I insure my collaterals?

From SBA, the failure to ensure the proper and adequate insurance coverage may lead to a “Repair” on loans. A repair is “an agreement between SBA and a lender to a specific dollar amount to be deducted from the funds SBA pays on the lender’s guaranty in order to fully compensate SBA for an actual or anticipated loss caused by the lender’s actions or omissions.

Insuring collaterals on an SBA loan is crucial for several reasons:

  1. Risk Mitigation:
    • Collateral serves as security for the loan. If you default on the loan, the lender can seize and sell the collateral to recover their losses.
    • Insuring the collateral protects both you (the borrower) and the lender from unexpected events that could damage or destroy the assets.
  2. Business Continuity:
    • Imagine your business relies on specific equipment, inventory, or property.
    • If a disaster (such as fire, flood, or theft) damages these assets, it could disrupt your operations.
    • Insurance ensures that you can repair or replace the collateral promptly, minimizing business interruptions.
  3. Compliance with Lender Requirements:
    • Most lenders, including those participating in SBA programs, require collateral insurance.
    • By complying with this requirement, you maintain a good relationship with the lender and meet the terms of your loan agreement.
  4. Protection for Your Business:
    • Collateral often includes critical assets like real estate, machinery, or vehicles.
    • Insurance covers risks beyond your control, such as natural disasters, accidents, or vandalism.
    • Without insurance, you risk losing valuable assets that are essential for your business’s success.
  5. Peace of Mind:
    • Knowing that your collateral is insured provides peace of mind.
    • You can focus on growing your business without constant worry about unexpected events affecting your assets.

Remember to discuss specific collateral insurance requirements with your lender and choose policies that adequately cover the value of your assets. ️

Do you have other questions? Inszone Insurance is here to help. Contact us now!


According to the SBA SOP 50 10 5 (B), you must have life insurance if the viability of your business is tied to you as an individual. The life insurance must match the size and term of your SBA loan. You also need to get collateral assignment with the lender as assignee, and have this assignment acknowledged by the Home Office of the Insurer.

If you use a property as collateral for an SBA loan, you need hazard insurance that covers the property. If your collateralized property is in a flood hazard area, you’ll also need a flood insurance policy that covers the property’s full value.

Every SBA loan has insurance requirements. But these requirements may vary depending on the type of business and loan amount your small business needs.

Chris Tracy

VP – Northern California

Chris is a VP Northern California at Inszone Insurance Services. His interest in commercial insurance was piqued in the summer of 2010 during an internship with Zurich North America where he came to appreciate the reward of helping businesses understand and defend themselves from risk. Given his background handling claims for Commercial Middle-Market, Global Corporate, and Large Construction accounts, he is able to provide unique insight to clients. Prior to his time in the commercial insurance field, his interest in human behavior culminated in the attainment of a Master’s Degree.

When Chris is not working, he enjoys spending time with his family and friends, losing golf balls every way imaginable, trying new wines, and hiking.

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