SBA rules · SOP 50 10 8.1

Is flood insurance required on an SBA loan?

Flood insurance is required when any portion of a collateral building is located in a special flood hazard area, and on personal property collateral located in such a building if the building itself is also pledged as collateral.

Quoted from SBA SOP 50 10 8.1Every quote checked word for word

In detail

Building collateral: If any portion of a building that is collateral for the loan is located in a special flood hazard area, the SBA lender must require the applicant to obtain flood insurance under the National Flood Insurance Program (NFIP) or comparable private flood insurance.
Personal property collateral: Equipment, fixtures, or inventory pledged as collateral require flood insurance only if they are located in a building that is situated in a special flood hazard area and that building is also collateral for the loan.
Determination basis: Flood insurance requirements are established based on the Standard Flood Hazard Determination, FEMA Form 086-0-32 or its successor, under NFIP provisions and interagency flood insurance regulations.
Required coverage amount: Coverage must be at least equal to the outstanding principal balance of the loan or the maximum limit of coverage available under the National Flood Insurance Act of 1968, whichever is less.
Required clause and notice: Policies must include a mortgagee or lender's loss payable clause in favor of the lender or CDC/SBA, and require at least 10 days prior written notice of cancellation, or 45 days for private flood insurance.

The source

What the SOP says

“If any portion of a building that is collateral for the loan is located in a special flood hazard area, the SBA Lender must require the Applicant to obtain flood insurance for the building under the NFIP or comparable private flood insurance (see Subparagraph b above).

SOP 50 10 8.1, Chapter 5: Other Core Requirements > Flood Insurance (lines 1420-1431)✓ Verified

“If any equipment, fixtures or inventory that is collateral for the loan (“Personal Property Collateral”) is in a building of which any portion is located in a special flood hazard area and that building is collateral for the loan, SBA Lender must require Applicant to also obtain flood insurance for the Personal Property Collateral either under the NFIP or through comparable private flood insurance (see Subparagraph b above).

SOP 50 10 8.1, Chapter 5: Other Core Requirements > Flood Insurance (lines 1420-1431)✓ Verified

“Insurance coverage must be at least equal to the outstanding principal balance of the loan or the maximum limit of coverage made available under the National Flood Insurance Act of 1968, as amended (42 U.S.C. § 4001 et seq.), whichever is less.

SOP 50 10 8.1, Chapter 5: Other Core Requirements > Flood Insurance (lines 1420-1431)✓ Verified

“Insurance coverage must contain a MORTGAGEE CLAUSE/LENDER’S LOSS PAYABLE CLAUSE (or substantial equivalent) in favor of the 7(a) Lender (for 7(a)), or the CDC/SBA (for 504).

SOP 50 10 8.1, Chapter 5: Other Core Requirements > Flood Insurance (lines 1432-1432)✓ Verified

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