How does life insurance cover SBA loans?
The excitement of starting a small business venture can be beyond limits. Nothing might be more exhilarating than firm shake hands while sealing newly found deals. Success stories look nothing like what’s behind all the glitz and glamour of triumph. For those who need to start from the beginning, receiving an SBA loan is a good start. As the agency doesn’t just hand out loans without protecting itself, you should start thinking about getting life insurance. Learn more about how life insurance provides SBA loan collateral.
Do you need life insurance for an SBA loan?
Yes, you need life insurance for an SBA loan. Under SBA SOP 50 10 5 (B), any SBA loan for a business that’s “tied to an individual or individuals” needs life insurance to protect the owner’s family and the lender. As you purchase a life insurance policy for SBA loans, note that you need to name your lender as the primary beneficiary as SBA loan collateral or you must have another form of collateral for the loan in the worst-case scenario.
Aside from getting an insurance policy as a requirement for an SBA loan, you’re also protecting your family from potential financial hardships the moment you go. The death benefit will go to your spouse or heirs. This money allows them to compensate for any loss of income or as payment for debts you might have. They can pay major loans like the one you’re trying to get from the SBA or mortgages on properties you may have.
How fast can you get life insurance?
For those applying before 60 years old, there are available non-medical policies up to $1,000,000 for SBA purposes. For people applying before they’re 66, policies up to $500,000 are available. It might only take a couple of days for those people aging 50 to 60 to be approved for the insurance policy. Note that it’s possible to stack multiple non-medical policies to accommodate larger loans to obtain SBA loan collateral.
If you’ve got a limited amount of time to get insurance for your SBA loan process, you’re encouraged to take a medical exam for insurance. With this process, you have the chance to widen your options while potentially lowering your rates.
What if you have a health issue?
You can still qualify for life insurance even if you have a severe health issue. People with diseases like diabetes or a history of heart illness can still apply to insurance companies that have their unique underwriting guidelines or requirements. There are companies more lenient than the others when it comes to applicants with serious health issues.
Can you use your life insurance for collateral for a loan?
When it comes to life insurance, there’s what we call ‘Collateral Assignment.’ This allows your insurance company to pay your lender the proper amount owed. You need to set this properly since naturally, your balance decreases as you make your payments on your SBA loan. It prevents the insurance company from overpaying your lender once you go.
Securing an SBA loan needs a great deal of effort and time. Don’t let the requirement of life insurance be the one issue that holds you back from securing the loan you want. If you need help when it comes to finding the best insurance policy for you, don’t hesitate to contact us for more reliable information.