It’s Not Even In The Fine Print!
There actually isn’t any fine print in the SBA loan requirements, so rest easy. I mean really rest easy, as in sitting in your favorite chair and settling in to read the 388 page guide to securing your SBA loan. I wouldn’t even know where to start myself, let alone advise someone else on how to tackle something like that, but I’m sure there are plenty of experts out there who can help.
But I’m not writing to address the big picture (388 pages), but rather a small portion of the process that often gets overlooked. There is an SBA requirement for your lender to require life insurance if “the viability of the business is tied to an individual or individuals”. In those situations, which is almost every small business, the lender is required by the SBA to ensure there is life insurance on the principal(s) of the business.
So, Let’s Start With The Basics
The SBA doesn’t actually lend money. They work with an approved group of banks and lending institutions who will lend money to your business. The SBA guarantees a portion of your loan so that your bank really isn’t on the hook for the whole balance if you default on the loan. That makes it less risky for your lender which, in turn, makes the decision for them to lend the money easier.
The average SBA guaranteed loan pre-pandemic was $663,000. If the principal of a business defaults on the loan the lender and the SBA will use the assets of the business to recoup as much of the, let’s say, $663,000 as they can. If they come up short of the loan balance, that’s the lender’s loss. The only good news for them is that their loss is partially offset by the SBA guarantee.
Is The Requirement Negotiable?
The answer is no. The SBA guarantee comes at a cost and the requirement for life insurance is one of those. The good news is that I’ve been able to help hundreds of business people meet this requirement even when getting traditional life insurance is difficult due to health history. I’ve specialized for 20+ years in helping clients with those difficult cases, even finding approvals when they have been declined through other agents. When a client is turned down, and we have exhausted all of those avenues, for life insurance through traditional companies we have been able, in every case, to put the required coverage in place through Lloyd’s of London.
The first thought for most when I mention Lloyd’s of London is expensive, but that isn’t necessarily the case. Lloyd’s is one of the largest business life insurance companies in the world and very competitive. For those who are up against a loan closing deadline they are also very fast, usually able to have a policy in place within a few days of receiving loan documentation. This is an advantage that no other company can claim.
Whether your business life insurance is required as with SBA, or not in other situations, using the Hinerman Group experience will provide the best possible results. If you need quotes, need business life insurance in a hurry, or just want to discuss your situation, call or email me directly. My name is Ed Hinerman. Let’s talk.