Insurance Requirements:

For deatils on insurance requirements see article: What To Know About the Bank Required Insurance Policies

What are the typical insurance polices requested?

Life Insurance:

Most business loans will require a life insurance policy (typically known as key-man or loan guarantee coverage) for the amount of the loan to protect the lender should the borrower pass away during the term of the loan.

General Liability:

Commercial General Liability insurance policy is required to cover bodily injury, death and property damage.

Errors & Omissions:

Certificate of Errors and Omissions (E&O) insurance in an amount of not less than the loan amount for protection against claims relating to the professional services provided by the Guarantors and the Borrower.

Workers’ Compensation:

Certificate of Statutory workers’ compensation insurance required for employees in connection with the advisory business (if there are employees).

Hazard Insurance:

Various forms of hazard insurance and clauses may also be required (specifically if real estate is being taken as collateral or if there are substantial tangible business assets). Commercial non-SBA lenders will typically have fewer requirements than with SBA loans.

When should I get started on the life insurance requirements?

This mostly depends on if you are assigning a current policy or getting a new policy. Best practice is starting as soon as a term sheet is executed. While other types of policies will require your attention, if a new life insurance policy is required this should be the initial focus because of the longer timeline associated with the process.

Is life insurance assignment to the lender for the loan amount required?

Yes, assigning a life insurance policy for the amount specified in your loan commitment letter is required.

What if I can’t qualify for life insurance?

We can typically get around a borrower who is ineligible for life insurance with an SBA loan. In this case, an insurance rejection letter and continuity/succession plan is required.

Should I assign an existing life policy or get a new policy?

If an advisor has a current life policy in place that exceeds the loan amount and they are in a rush to close the loan, then from a lending perspective it is much faster to assign a current policy for the bank and get another new policy to replace it for your beneficiaries.

If there isn’t a rush, then a new policy can usually be obtained and assigned in time. Lenders can also swap out policies after closing if you decide on changes.

What if I need to get a new life policy?

Sometimes borrowers are torn between assigning coverage (because it may be faster) and getting underwritten for new coverage. If a new policy is needed we suggest that the process for this be started at the beginning of the loan process considering life insurance application, underwriting, medical records, approval, receiving the policy, assigning the policy, and getting the carrier to acknowledge the assignment can sometimes take as long or longer than the loan process.

What is an “ACORD” form?

The ACORD form is a certificate of insurance that summarizes the essential information about your insurance policy, such as coverage types, policy numbers, insurance limits, and effective and expiration dates. This is the form lenders need to see for proof of insurance and where the additional bank language is added.