SBA rules · SOP 50 10 8.1

Is hazard insurance required on an SBA loan?

Yes, hazard insurance is generally required on all real estate and personal property collateral for 7(a) loans and 504 projects greater than $50,000, unless a specific exception applies.

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

In detail

General requirement: For 7(a) loans and 504 projects greater than $50,000, SBA requires hazard insurance on all collateral assets in the amount of full replacement cost or maximum insurable value; if unavailable, the loan cannot be approved.
Required lender clauses: Real estate policies must include a Mortgagee Clause, and personal property policies must include a Lender's Loss Payable Clause in favor of the Lender or CDC/SBA, each requiring at least 10 days prior written notice of cancellation.
General exceptions: For loans of $500,000 or less, hazard insurance is not required on junior-lien residential real estate if coverage cannot be obtained, or if the full replacement value of the business's assets is $50,000 or less.
SBA Express and Export Express: Lenders may waive hazard insurance under their own policies for small loans (for example, if it would impose an undue burden on the applicant), provided the justification is documented in the loan file.

The source

What the SOP says

“For 7(a) loans greater than $50,000, and for 504 projects greater than $50,000, SBA requires hazard insurance on all assets pledged as collateral. If hazard insurance is not available, the loan cannot be approved.

SOP 50 10 8.1, Chapter 5: Other Core Requirements > Hazard Insurance (lines 1397-1401)✓ Verified

“For loans of $500,000 or less, if residential real estate is pledged as collateral and the lien will not be in first position, and if hazard insurance cannot be obtained, then it is not required on the residential real estate;

SOP 50 10 8.1, Chapter 5: Other Core Requirements > Hazard Insurance (lines 1397-1401)✓ Verified

“For loans of $500,000 or less, if the full replacement value of the business’s assets is $50,000 or less.

SOP 50 10 8.1, Chapter 5: Other Core Requirements > Hazard Insurance (lines 1397-1401)✓ Verified

“Coverage must be in the amount of the full replacement cost.

SOP 50 10 8.1, Chapter 5: Other Core Requirements > Real Estate (lines 1402-1405)✓ Verified

“If full replacement cost insurance is not available, coverage must be for the maximum insurable value.

SOP 50 10 8.1, Chapter 5: Other Core Requirements > Real Estate (lines 1402-1405)✓ Verified

“Insurance coverage must contain a 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 > Personal Property (lines 1406-1409)✓ Verified

“If the Lender does not require hazard insurance (for example, if it would impose an undue burden on an Applicant given the small size of a loan), the Lender must document the reason in its loan file.

SOP 50 10 8.1, Chapter 5: Other Core Requirements > Exceptions for SBA Express and Export Express (lines 1410-1411)✓ Verified

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