As a business owner, you are required to purchase life insurance as part of a loan agreement. This life insurance policy will serve as a collateral assignment, and it will provide peace of mind in case something happens to you, and your family is left without the means to repay the loan. When applying for an SBA loan, one of the requirements is that you have life insurance in place. The SBA will require proof of life insurance before they approve your loan.
What are the Types of Life Insurance that an SBA Loan Requires:
- Term Life Insurance – the most common type and is generally cheaper than other types of life insurance that is used to meet the SBA requirement. This policy covers you for a specific period of time, usually 10 to 30 years.
- Permanent Life Insurance is a policy that covers you for your entire life. The benefit of whole life insurance is that it can be used as collateral for your loan.
Remember: No matter what type of life insurance you use to meet the SBA requirement, it is important to make sure that the policy is in place before you apply for your loan. The SBA will not approve your loan until they have proof of life insurance.
If you have any questions about the life insurance requirement for an SBA loan, please contact us at https://lions.financial/contact/
We can help you find the right policy to meet your needs.
What you need to know:
- The amount of coverage you need will be based on the size of the loan. Lenders will require you to purchase a policy with a death benefit that is at least equal to the outstanding loan balance.
- You may use your personal life insurance policy as collateral for the loan. This is a good option if you already have a policy in place, but it is important to make sure that the policy coverage is adequate for the loan amount.
- If you are required to purchase a new life insurance policy as part of the loan agreement, be sure to shop around and compare rates from different insurers. It is also a good idea to work with an insurance agent who can help you find the right policy for your needs and budget.
By understanding these key points, you can be sure that you are adequately protected in case something happens to you, and your family is left without the means to repay your business loan.
Finally, it’s important to note that a life insurance policy must name the SBA as the beneficiary. This ensures that the loan proceeds will go directly to the SBA in the event of the borrower’s death.
When it comes to your business, you want to make sure everything is secured, covered, and protected. An SBA loan is a great way to get the financing you need, but it’s not without risk. Find a policy that meets all the requirements, and gives you peace of mind knowing that your SBA business loan will be repaid in the event of your death.