Article by Roger Schlueter
Insurance may be Needed by the Bank or Financial Institution on your Business Loan.
The Insurance we are talking about is Hazard & Liability Insurance and Flood Insurance on Real Estate, Insurance on the Equipment and Contents of you Business, Workmens Comp, and Life Insurance on the Key Person of the Business. Some banks and the SBA will also want Environmental Reports on any Real Estate that you are buying with the Business Loan. Most of these Insurance Products will be purchased just before closing of your new Business Loan. A little planning can save you much time and effort in your business loan process. I will cover each Insurance and Environmental Product individually below listed under the Asset being purchased:
1) Real Estate – banks and financial institutions will want you to have several types of insurance on
any real estate being purchased with a business loan.
Hazard & Liability Insurance – The Hazard Insurance is needed in case of Fire, or Weather
Related Losses. The Liability Insurance is needed in case someone gets hurt on your
property.
Flood Insurance – The business will be required to have flood insurance if the property is in a
Flood Plain as determined by the National Flood Maps. The Bank or Financial Institution will
run a Flood Determination from a company that specializes in determining flood areas. Flood
Insurance can be a little pricey if you never use it, but is cheap if your area floods.
Environmental Reports are absolutely needed on properties that have been home to a
company that was a gas station or car repair facility. Environmental Reports are also needed
on many Manufacturers, Farms and other companies that use chemicals and pesticides.
The Property may only need a Questionnaire but the next steps are a Phase I and a
Phase II and may necessitate cleanup if it is determined to contaminated.
2) Equipment – Banks and Financial Institutions will also want you to have Insurance on the
Equipment you are buying and any Furniture and Fixtures in your building and property. Usually
what is needed is just an Insurance Policy covering the Equipment, Furniture and Fixtures.
3) Workmens Compensation – This Insurance is if you have employees and is only expensive in
industries that have claims or companies that have claims. Most states have a statewide pool
that covers all companies that buy the insurance.
4) Life Insurance – Companies that have to get Life Insurance on the owners are usually run by one
Key Person. This insurance is also called Key Man or Woman Insurance. Banks and SBA will
Require Life Insurance on the Owner if there is a chance the company will cease if the owner
would die. SBA (U.S. Small Business Administration) Requires this insurance on almost all of it’s
Guarantee Loans. Usually accommidation is made to individuals that cannot get Life Insurance
due to their Health or a Health Issue. Amounts of the insurance will run from the loan amount or
any portion of that amount.
Please email me at roger@rogerschlueter.com with any questions or comments. I also have a website at schlueterfinancial.com