SBA Loan Insurance Requirements

What Insurance Is Needed for SBA Loans?

Before your company can get a small business loan from the Small Business Administration (SBA), you’ll need the right insurance coverages. In fact, the SBA requires certain coverages before they give you loans. However, these insurance requirements vary depending on your type of business and the loan you choose. Some common policies that the SBA may require include:

Hazard insurance
Property insurance
General liability insurance
Professional liability insurance
Workers’ compensation insurance
Liquor liability insurance

Hazard Insurance

Small business hazard insurance helps protect your business’ owned or rented building. It can also help repair or replace:

Personal property
Tools and equipment
Inventory
Furniture
Computers
Valuable documents

So, if a fire damages your business’ building, hazard insurance can help cover your repair costs. One example where small business owners may need hazard insurance is with Economic Injury Disaster Loans (EIDL) from the SBA. These loans are available to small business owners of non-profits and those in agriculture across the U.S. The maximum loan amount for EIDL loans is $500,000.¹

Property Insurance

Commercial property insurance helps protect your business and its physical assets. This insurance coverage is especially important for home-based businesses. It helps pay for the repairs or replacement of damaged property from fire, theft or other covered losses. This can include your:

Building
Equipment
Tools
Inventory
Furniture
Personal property

EIDL loans from the SBA that are greater than $25,000 usually require some collateral, like machinery, equipment or furniture.² The SBA will likely require you to have personal property insurance to cover that collateral.

General Liability Insurance

General liability insurance will help cover your business from property damage and bodily injury claims. So, if a customer slips and falls in your store, this coverage can help pay for their medical treatment.

Similar to personal property, many SBA loans that require collateral will likely require insurance coverage to help protect that property from damage. For instance, general liability insurance may be required to help cover your property and pay to replace it if it’s damaged. Flood insurance may also be required if your business is in an area that’s prone to flooding.

Professional Liability Insurance

Professional liability insurance can help protect your business from errors or omissions that you or your employees make on the job. It can help cover claims of:

Negligence
Misrepresentation
Inaccurate advice

This means if your accountant provides inaccurate financial advice to a client and they sue your business, this coverage can help pay your legal costs. If your business gives out professional advice or services to your clients, the SBA will likely require you to have professional liability insurance.

Workers' Compensation Insurance

If your business has employees, you’ll likely need workers’ compensation insurance. This coverage can help provide benefits to your employees if they have a work-related injury or illness. These benefits include:

Help paying for medical treatment
Replacing lost wages if your employee needs time off work to recover
Disability benefits
Paying for funeral expenses

If your business has employees, the SBA will likely require you to carry coverage that meets your state’s minimum requirements.

Liquor Liability Insurance

Liquor liability insurance is important if your small business sells, serves or distributes alcohol. This coverage can help pay for claims of bodily injury or property damage caused by an intoxicated person after they have alcohol from your business. SBA loans typically require this coverage.

Additional SBA Loan Insurance Requirements

In addition to the coverages above, your business may need additional policies in order to get a loan. This can depend on the loan amount and the type of business you run. Some other coverages you may need include:

Term life insurance
Product liability insurance
Flood insurance
Real estate insurance

Are You Personally Liable for an SBA Loan?

Business owners are personally liable for SBA loans. This means that you’re responsible to repay the loan. If you don’t, your lender can sue you to collect what you owe them. This can result in you losing your business or personal assets.