If you’re among the over 3.7 million businesses that have received a Small Business Administration (SBA) Economic Injury Disaster Loan (EIDL), then you probably know that loans greater than $25,000 require proof of Hazard Insurance. We’ve been contacted by several of our business clients with questions pertaining to this insurance, including what it is and how to obtain it, so today we’re going to provide you with some answers.
SBA EIDL Loans
First, let’s take a step back and talk about the SBA’s EIDL loans. These loans were derived in response to the ongoing COVID-19 pandemic and the negative impact it has imposed on small businesses. EIDL loans are available to small businesses, including agricultural businesses and non-profit organizations, in all U.S. states, Washington D.C. and territories. Their purpose is to help these businesses meet financial obligations and operating expenses that could have been met had the COVID-19 pandemic had not occurred.
The maximum EIDL loan amount is $500,000, and any loan over $25,000 requires some form of collateral. The business’ assets, such as buildings, machinery, equipment, furniture, and fixtures can all be used as collateral. Since the assets are used as collateral, the SBA requires that these $25,000+ loans are insured with Hazard Insurance.
What Is Hazard Insurance?
Hazard Insurance is another name for Business or Commercial Property Insurance. It provides coverage for losses to your business property, including the owned or rented building your business operates in, as well as the items you use in your business. It can help to cover the cost to repair or replace your building, personal property, tools and equipment, inventory, computers and other technology, furniture, and accounts receivable damaged by a covered peril. Typically, the covered perils will include fire, theft, lightning, wind, and hail. Not all policies are the same, so you want to make sure your policy covers all the types of perils you may anticipate due to the nature of your business.
These policies can also include Business Interruption coverage. If a covered peril causes your business to not be able to operate, Business Interruption can replace your lost income.
Do I have Hazard Insurance?
You may. There are several types of business insurance policies that include Hazard Insurance coverage. If you have a Commercial Property policy, you have Hazard Insurance. You should still review the coverage limits with your agent to ensure you have an adequate amount of coverage for all your property. Business Owner Policies, or BOPs, also include hazard coverage. Again, it’s a good idea to review this policy with your agent.
Homeowners Insurance policies do not provide Hazard Insurance and the person who owns the home, not the business, is the named insured on the policy. You will need a commercial insurance policy for your home-based business to fulfill the Hazard Insurance requirement for the loan.
Other Things to Know
- The SBA requires that anything provided as collateral for the loan be covered for up to 80% of its value
- The named insured on your Hazard Insurance policy must match the name on the EIDL
- Sole Proprietors who us a “D.B.A.” must have the D.B.A. listed on the policy
- If your business is in a Federal Emergency Management Agency (FEMA) designated special flood hazard area, you will need flood insurance as well. Flooding is not covered in a Hazard Insurance policy.
- You’ll need to provide the SBA with the Declarations Page from your Hazard Insurance policy as proof of coverage for the loan
Our Agents Are Here to Help
If you don’t have Hazard or Property Insurance, or are unsure about your coverage, give us a call at (770) 726-8700. Roundtable Insurance can provide Hazard Insurance for clients in Georgia, Florida, Alabama, Mississippi, Louisiana, and Texas. Our agents are well-versed and proficient in Commercial Property Insurance and we are here to answer any questions you have!