Life Insurance for SBA Loan, A Guide to Getting the Right Policy

Establishing a small business can be complicated, especially if you lack the startup capital. As a dedicated entrepreneur, you need to explore as many options as possible in order to get started. Remember that your close friend or relative may not be willing to offer you cash for your business startup. As such, you may find yourself in total darkness since no one is willing to lend you money. During such dark times, you may opt for the Small Business Administration (SBA, which helps small businesses to secure loans either to establish or expand their businesses. The whole procedure starts by securing life insurance for SBA loans.

SBA loans usually amount to tens of thousands of dollars or even more. As such, financial lenders expose themselves to huge risks because of loan defaulters. There is also a possibility of death before the loans are fully repaid. So, both the Government and the lenders see the importance of protecting themselves from unforeseen death, and this is through life insurance policy.

Why is Life Insurance Required?

If you ask a young person about their take on acquiring life insurance, you will be surprised by the kind of responses you will get. Some of them will demand to know whether or not obtaining life insurance is a compulsory thing. Others will claim that they are too young and healthy, and thus no need for the coverage. Surprisingly, others will say they would wish to invest somewhere else where they can enjoy returns while they are alive. The reason why you will get such reactions is that most of them do not know the benefits of obtaining life insurance.

By definition, life insurance is a written contract between the insured and the insurer, whereby the former has to pay agreed monthly premiums while the latter promises to pay a lump sum to whoever is indicated as beneficiary when the insured dies. Outlined below are some of the benefits you can accrue if you obtain life insurance:

Taking care of your loved ones after your death- This means that your family will be depended on you even after you are gone.

Deals with outstanding debts- If there are loans you hadn’t finished repaying, they will be settled by your life insurance company.

A great way to achieve your long-term goals- This is a long-term investment and can enable you to achieve your future dreams, such as buying your dream home or planning for your retirement.
Taking care of your business- Life insurance is not only meant for you and your family, but also for your business. For instance, term life insurance offers protection for a specified period whereby benefits are paid only if you die during the term.

It is a saving tool- Premiums paid each month accumulates over time and one can obtain a loan to finance their business.

Offers your loved ones total peace of mind- It is a great way to keep your family at peace in the event of your death.

Why Life Insurance for an SBA Loan is Vital

Apart from protecting your loved ones from financial hardship in the event of your death, life insurance is a mandatory requirement for an SBA loan. So, when obtaining life insurance, you need to be extremely careful before sealing a deal with an insurance company out there. With term life insurance, you can count on benefits, such as:

  • Flexible options
  • Affordable coverage
  • No startup costs
  • A fixed rate for a specific time period
  • Freedom to change or cancel your policy any time

What Collateral is assigned for Life Insurance SBA Loans?

If you have ever tried to apply for a small business loan, you must have heard of the term collateral. When it comes to SBA loans, the lender is assigned a collateral, which acts as security for the loan. Life insurance policy is the common type of collateral assignment when taking an SBA loan. The policy acts as an asset that the financial lending institution will have access to in case the assignor dies or defaults to repay the loan. Conditionally, the policy’s holder assigns the lender as the primary beneficiary to cover the remaining loan should anything happen to them before the loan is fully repaid. If the assignor dies or is unable to repay the loan, the remaining amount owed is deducted from the value of the life insurance policy. Once the loan has been repaid fully, the remaining amount of death benefit is transferred to the beneficiaries, such as spouses, relatives or children.

What Type of Coverage is the Best?

When scouting for life insurance for SBA loans, consider looking at term life insurance. Term life insurance is the common type of life insurance usually purchased for SBA loans. The term life offers coverage for a specified number of years. Most of the money lending institutions are for a set number of years, typically between 10 and 30 years. For instance, a ten-year term is enough for insuring an SBA loan because there is great hope that your business will still be existing and the loan will have been cleared by then. And because starting or expanding a business may hold your money tight, a term policy will try to keep monthly premiums as low as possible.

What are the Requirements to Get an SBA loan?

For small business owners, an SBA loan is a great form of business funding. Keep in mind that SBA loans have low rates. As long you meet the minimum requirements, it is an affordable way of financing your business. Due to their nature of flexibility, these loans can be used to purchase real estate, buy equipment, refinance your loan, or even use it to expand your business.

Just because of their favorable terms, SBA loans are highly competitive. The application process for an SBA loan can be complex and time-consuming. In order to speed up the process, you need to understand all the SBA loan requirements before you apply.

One of the requirements is that you must be US-based. Non-US people do not qualify for these loans since they are US government-guaranteed business loans. Secondly, you should demonstrate excellent personal credit, enough collateral, and stable business financials. If you own about 20% or more of the business, then be ready to sign a personal guarantee.

Apart from the above general requirements, there are specific requirements, which vary depending on the type of SBA loan you are looking to obtain. Also, the amount you are acquiring and how you plan to use the funds matter a lot. Outlined below are the top things you need to know so as to be able to submit a successful SBA loan application:

1. Profit-making Business in an Eligible Industry

Apart from being US-based, your business ought to be a profit-making one. Non-profit making businesses do not qualify for SBA loans. The business should also be within an eligible industry. Listed below are the industries that have been barred from receiving SBA loans:

  • Money lending companiesBusinesses involved in political affairs
  • Life insurance companies
  • Businesses engaged in gambling
  • Speculative businesses
  • Passive income businesses

Apart from the above SBA eligibility requirements, each lender ought to have their own list of eligible and ineligible industries. So, before proceeding with the application process, make sure you cross-check the list to see if you are eligible.

2. SBA Size Standards

Since SBA is meant for helping small business owners, they have to verify the size of your company before you are awarded the loan. The business must be small. Size of business can be determined in 3 different ways:

  • Number of Employees- Depending on the industry your business is based on, a small business can mean something between 100 to 1500 employees.
  • Business Revenue- This is also based on the industry. For the business to be termed as small, its revenue should range between $0.75 million and $38.5 million.
  • Business Net Worth- Any small business should not exceed a net revenue of $15 million.

Note that SBA keeps on changing what they term as small business. As such, you need to keep in touch with the SBA interactive tool so you can monitor any changes that may occur.

3. Personal Character and Background

Before you can qualify for an SBA loan, you need to submit your background information. These may include your citizenship status, your criminal record and physical addresses. Remember that most of the small business owners tend to default in repaying their loans, so that is why lenders have to thoroughly verify personal information.

If someone has a criminal record, they can still qualify for an SBA loan as long as the crime is not a felony. But lenders have to carry out a close scrutiny of such applications with criminal injustices. Citizenship status is required because only U.S. citizens and permanent residents qualify for SBA loans.

4. Resumes of Company Management

Lenders need to know more about your business background. They would want to know how experienced you are in the industry. The resume is particularly needed if you want a loan for a business startup. It is, therefore, important to prepare the resume very well as it will determine your eligibility for the SBA loan.

5. Business Plan

Alongside a resume, a business plan is a vital requirement for an SBA loan. Your business plan gives your lender conviction that your decision to invest in a small business is a sound one. Ensure your business plan includes the following:

  • A detailed explanation of your product or service
  • A brief analysis of your competitors
  • Your marketing strategy
  • For an existing business, including historical financial statements
  • 3-5 years of financial projections
  • Use of loan proceeds
  • Terms of existing debts

If possible, try to add details as to why your business is unique. Explain why you have hope in the success of your business. In essence, try to convince your prospective lending company that you are worth the investment.

6. Time in Business

Your prospective lender would want to know how long your business has been existing before approving your SBA loan. The good thing about SBA is that they do not have a fixed time in business requirement. As such, the longer your business has existed, the higher the chances of getting your loan approved. For a young business, SBA may require a minimum of two years in business.

7. Personal Credit Report

Your personal credit score is vitally important when it comes to eligibility for SBA loans. The score shows how you have been managing your finances. Excellent personal credit score gives lenders reassurance that you will be trustworthy and repay your loan on time. Before authorizing your lender to see your personal credit report, make sure you first obtain your own copy. If there is an error in the report, follow the right procedures to make the necessary corrections.

8. Business Credit Report

Unless you need a loan to start a new business, your business credit report must be submitted to the lender. Any business that has been around for long has a business report, which evaluates how the business has been performing.
Other vital requirements may include the following:

  • Personal and business income tax returns
  • Business financial statements
  • Business debt schedule
  • Bank statements
  • Collateral
  • Personal guarantee
  • Legal documents

Once you have all the SBA loan requirements, you are now ready to fill out your loan application form. You now enter the underwriting process whereby the SBA takes all the requisite information you provided to access whether or not your business qualifies for the loan. As compared to other types of small business loans, SBA loans usually take a little bit longer to process. But if you are looking for a low-cost business loan, an SBA loan is worth the wait.

Where to Get Affordable Life Insurance

When scouting for an affordable SBA loan for life insurance out there, consider using an independent agency that represents multiple insurance companies. Utilize an agency that is not biased at all and has vast experience in this particular field. The agency will not only find a low-rate life insurance for SBA loans but will also advise you on the right way to go.

You need to seek help from an independent life insurance agent who represents hundreds of insurance companies within your state. The agent must be knowledgeable about those carriers offering the lowest rates in the market. You should partner with agents that have already developed a strong working relationship with the leading insurance carriers around your area. Such agents are able to negotiate price on your behalf, and this can enable you to save money and time.

Advantages of Using an Independent Life Insurance Agent

There are many reasons why you should opt for an independent life insurance agent other than a company’s agent. Keep in mind that independent agents try to match their products to prospective clients while captive agents match their clients to specific products available. Since you are looking to get the best life insurance policy at the best price, using an independent agent can be highly advantageous. Below are the top benefits of using an independent life insurance agent:

Competitive Advantage

While a captive agent only represents one life insurance company, an independent agent is not restricted to any of the company’s products. As such, an independent agent has access to dozens of products being sold by different insurance companies in the market. A reliable agent will do thorough comparison until they get a policy that reflects your situation.

Saves You Money

An independent agent is out to find you the most competitive life insurance rate in the market. Remember rates vary from one insurer to another. As such, independent agents use their vast knowledge with the industry to find the most affordable rate and this is going to save you money.

Helps You Get Customized Products

Bear in mind that people have different life insurance needs. For instance, most of the entrepreneurs need loans to either start or expand their businesses. Most of the lenders may require life insurance to act as collateral for the loans. If you talk to an experienced independent agent, they can find you a product that best suits your individual needs.

Offers Valuable Guidance

The insurance industry can be complicated to navigate, especially if you are a first-timer. Talking to an independent life insurance agent can help shed some light on the same. This is because they have been in the industry for long and have thus mastered all the nuances surrounding life insurance.

Where Can You Find An Independent Agent Today?

Regardless of your needs to obtain a life insurance policy, you can always speak to a seasoned independent agent at CFAinsure.com. We are that agency who are ready to shop around for top-rated carriers in the market. We are going to save you the hassle of shopping around for an affordable life insurer. Having been around for quite some time, we are well-versed with the market and have a long list of carriers to choose from. You can contact us via our telephone: 212-573-5563, or just fill out our quote request form and one of our representatives will get in touch with you.