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Did you get a Small Business Administration (SBA) Loan?

Did your business receive a loan from the Small Business Administration (SBA)?

If you get an SBA loan, you will need to provide them evidence that you have business personal property insurance, commonly referred to as contents coverage.

Business personal property is to cover the property and equipment that is used in your business.  It does not provide building coverage.

This includes things such as:

  • Chairs
  • Desks
  • Computers
  • Specialized equipment like restaurant cooking equipment or machinery used in the business.

COVID 19 has caused a lot of business owners to apply for special SBA loans to continue their business

We have had several clients that needed to obtain business personal property coverage in the last few months.  These clients elected to have general liability insurance for their business.

Does general liability insurance include business personal property coverage?

General liability insurance coverage only does not provide personal property coverage.  Property coverage could be added as another line of coverage to your general liability policy.  But it is not automatically provided.

How much business personal property coverage will you need?

There is no universal answer.  It depends on how much your business owns.  Think about everything you own for your business: equipment, fixtures, supplies, and inventory.

That is the amount of coverage that you need for your business personal property coverage.

If your SBA loan is $25,000 or greater, the SBA will require that the business personal property coverage be at lest 80% of the loan amount.

Why is the SBA loan requiring Business Personal Property Coverage?

They are providing you with a loan.  When someone loans someone money they want some type of collateral for the loan.  They are using your business property as the collateral.  The SBA will have to be added as a loss payee on your business personal property coverage.

I want the minimum amount of coverage.

Business personal property is generally not a huge cost in an insurance program.

Most carriers require your property to be 80% insured to value.  It it is not, they will penalize you if there is a claim.

Say that you have $10,000 in contents but decide to insure for $5,000.  There is a loss for a $2,500 claim.  The insurance company determines that you should have $10,000 in coverage.  But your limit is only $5,000.  So, of that $2,500 claim they will only pay 1/2 of the claim amount less your deductible.  Does not leave you in a good place.

All my stuff is old, so it is not worth much.

Most insurance policies offer replacement cost coverage for the business personal property.  This means that the company will pay the cost to replace the item with like quality new product.   So even though your desk is 10 years old, the insured value should be based on what it would cost to go and buy a similar desk today.

Business liability insurance has coverage for rented premises, is this all I need?

Again, this is a liability coverage which protects a 3rd party and does nothing to indemnify you.   Damage to premises rented provides coverage if you are liable for fire damage to a place you are renting.  If you are in a temporary location for less than 2 weeks, this coverage provides broader causes of loss then just fire.

I work out of my home.  Will contents coverage from the homeowners insurance policy work as proof for the SBA loan?

A standard homeowner’s insurance policy may not provide the full contents value to your business personally property.  The coverage is limited to $2,500 on premises and $250 off premises.

The homeowner’s policy is written in your individual name and the loan from the SBA was written to your business.  The SBA is looking for the proof of business personal property to be in the name of the business.   Therefore, they may not accept the homeowner’s coverage as proof of coverage for the loan.

You should always review the terms and requirements of the loan before applying or accepting the loan.

Contact Huff Insurance

Feel free to contact us to go over your insurance requirements.  Be sure to have the appropriate coverage and the approximate cost.  If you do not, you may be left with unexpected additional costs.

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