Understanding The Connection Between An SBA Loan And Life Insurance

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The United States Small Business Administration (SBA) has been helping small businesses get their start, grow bigger, and recover from disasters since 1953.

In 2020 the COVID-19 and government relief programs such as the CARES act put a spotlight on the SBA. It was a historic year for the entire world and the SBA. Over 9 million loans worth over 750 billion dollars were granted to small businesses around the country in 2020.

Securing an SBA is a lengthy process. There are several steps to take and many requirements to take. It can take several months from the initial application to the funding of your loan. Borrowers often find themselves frustrated between steps or stressed when they hit unexpected hurdles.

What’s one hurdle that takes many borrowers by surprise?

The life insurance requirement. Most SBA loans require borrowers to have life insurance before the loan is finalized. The need for life insurance can often slow down the SBA loan process. In addition, borrowers aren’t always told they’ll need life insurance until very late in the process, leading to a scramble.

However, you can take steps to prepare and make the process quicker. Our guide will show you what to expect when you’re applying for an SBA loan, explain how life insurance plays a role, and give you some tips to help you along the way.

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SBA Loans and Life Insurance Basics

SBA loans are often for substantial amounts of money. In fact, the average SBA loan is just over $100,000, and loan amounts can reach as much as five million dollars.

Loans of that size leave the government and the lenders they work with at considerable risk if the borrower were to pass away before paying back the loan in full. One way to guard against these losses is with collateral. 

Collateral is a term used to describe an item of value that could be used to repay on a loan if payment stops. Some types of loans, such as car loans and mortgages, have collateral built-in. That’s why banks will repossess cars or foreclose on mortgages if payments stop. 

SBA loans are in danger of not being repaid in the event of an unexpected death. That’s why they often require life insurance policies as collateral. A life insurance policy you are often required to take out when obtaining an SBA loan will be used to pay the remainder of your loan balance if you die before you finish making payments. 

You’ll be required to take out a life insurance policy that has a death benefit amount that is at least as much as the entire amount of your SBA loan. You can also choose the type of life insurance policy you want, but most people prefer term insurance as it is the most affordable.

However, if you choose to take out a term insurance policy, it will need to have a contract length that is at least as long as the repayment terms of your SBA loan. Plus, your life insurance policy will need to be active before your loan can be approved.

Beneficiaries vs. Collateral Assignment

It is imperative to understand that your lender isn’t the beneficiary of your life insurance policy. Instead, your life insurance policy will need to designate as a collateral assignment to your lender.

You’ll still need to name a beneficiary of your choosing to receive your policy payout. Should you pass away while your life insurance contract is active, the payout of the death benefit would be distributed first to pay off the balance left on your SBA loan. Any remaining death benefit would then be paid out to your beneficiary.

Since your loan balance will depreciate over time, it would not make sense to name the lender as the beneficiary. Think about it this way; let’s say you have five years into your life insurance policy and have made five years of payments towards your loan balance.

That five years of payments towards your loan balance will have likely reduced the total payoff amount by quite a bit. Now, look at the death benefit of your life insurance policy. The death benefit of a life insurance policy stays the same. It doesn’t go down.

If you were to name the lender as a beneficiary and you passed away, let’s say five years after making several payments towards your loan, the insurance company would still be required to pay the full death benefit to the lender.

To avoid this from happening, life insurance companies offer collateral assignments. A collateral assignment is a policy form that names the lender as an assignee of the policy, similar to a beneficiary. 

However, an assignment still allows you to name a primary beneficiary that would be entitled to any remaining death benefit left over after the lender has been made whole on the loan balance due.

To see how this works, let’s say a woman named Monica owns a small business. Monica takes out a $500,000 SBA loan that is structured to have a 20-year payment plan.

Monica’s SBA loan requires that she take out a life insurance policy equal to the loan amount. Accordingly, she purchases a 20-year $500,000 term life insurance policy with her spouse listed as the beneficiary and the lender as a collateral assignee.

As Monica pays down her loan, the payout amount due to the lender would lessen, giving her spouse a larger piece of the death benefit if she were to pass away.

After Felicity finishes paying off her loan, she could still hold the $500,000 life insurance policy, and her spouse would receive the total payout if Felicity died unexpectedly.

SBA Loan Requirements

SBA loans can be very competitive, and the process can be a little complicated. It’s a good idea to make sure you meet all the requirements before you sit down to apply. You can gather all the financial and other information you need to make the process easier.

You’ll need to:

Your business must be physically based in the United States

Have a for-profit company – Non-profit companies aren’t eligible for SBA loans.

Have a business in an eligible industry – Certain industries aren’t eligible for SBA funding. This includes companies involved in gambling, money lending, life insurance, politics, and business that only earn passive income. In addition, individual lenders might have their own lists of ineligible industries.

Meet size requirements – The exact size requirements depend on your industry. Some industries allow businesses of up to 1500 employees, while others cap the max at only 500. Similarly, maximum revenues must be less than $7.5 million annually. You’ll also need a net worth of less than 15 million to qualify. These requirements change regularly. You can use this tool to check current standards.

Pass a background check – You’ll have a more challenging time getting an SBA loan if you have a criminal record. However, it’s not impossible. It will likely depend on the severity of your past offense and how long it was. You should be prepared to answer questions from your lender about your criminal background in this situation. 

Present documents that show the strength of your business – You’ll need to show your lender evidence that your business will succeed. A detailed business plan is a requirement. In addition, it’s a good idea to layout your product or service, marketing strategies, existing financial records, and projections. Resumes of your company’s management team can also help secure a loan. They can show lenders that your business is being led by people with experience and skills.

Present financial records and documents – Your lender can ask to see a variety of financial records. This might include tax records, bank statements, business financial statements, and payroll documents.

Have solid personal credit – Lenders will look closely at your credit when applying for an SBA loan. It’s a good idea to pull a copy of your credit report before you apply. You can make sure your credit is excellent and can check for errors in your report.

Have strong business credit – New businesses might not have a business credit report yet. However, companies that have been around for a few years will have a business credit report and score. Just like your personal credit, you’ll stand a better chance of securing a loan if your business credit is excellent.

SBA Loan Process

There are several steps in the SBA loan process. Following each step carefully improves your chances of a successful loan application. Steps in the process are outlined below.

Choose the best loan program for your business – The SBA offers several loan programs, including temporary programs to help small businesses during the COVID-19 pandemic. The most popular program for small businesses is an SBA 7(a) loan, but it’s good to carefully look over all the different loan options.

Choose a lender – The SBA works with many lenders to offer loans to small businesses. You can look through the lenders available in your area to see teams, rates, and amounts. It’s important to choose a lender that offers terms that will work for your business and has a track record of successfully working with the SBA and small businesses. 

Fill out your application – Your loan application will ask you for detailed information about your business and personal finances. You’ll need to provide detailed information about your business, current financial state, and future plans. You’ll generally need to provide information about your personal history and personal finances as well. The exact application will depend on your loan program and lender.

Receive a “Letter of Intent” – A “Letter of Intent” is a statement from a lender that you meet the initial criteria for a loan. It is not an approval. This is because your loan hasn’t yet gone through full underwriting. The ‘Letter of Intent” will let you know your interest rates and monthly payments if you are approved. You’ll need to sign this letter and send it back if you agree to the terms.

Wait several weeks during underwriting – SBA loan underwriting can take several weeks. There’s not much you can do during this time. Your lender will look over all the information you provided. They’ll pull your credit report, criminal record, and other data. This information will be used to determine your eligibility for a loan.

Receive a decision – Although it might sound like the last step, there’s actually still more to do after you receive approval. Your loan will move into the closing stages, and the lender will make sure you and your business have everything in place to receive your loan.

Secure a life insurance policy – You won’t be able to finalize your loan until you have a life insurance policy in place. As stated above, your life insurance policy will need to be at least as large as the total amount of your loan, and your term will need to last at least as long as the repayment term on your loan.

Make collateral assignment – You’ll need to have collateral assignment documents on your life insurance policy sent to your SBA lender. This can take up to a week. You’ll receive your funds once your lender receives and reviews these documents.

Life Insurance Process

It can be frustrating to apply for life insurance while you’re already applying for something major like an SBA loan. However, securing life insurance doesn’t have to be a headache.

There are some extra steps to be aware of when you’re applying to secure an SBA loan, but the basic process is the same as any other life insurance application:

Shop around for the best rates – You can use online tools to get quotes from life insurance companies and compare rates. It’s always a good idea to compare rates at multiple companies before applying anywhere. It’s also best to look for companies that meet your specific needs. For instance, some companies are a good bet for people who smoke, people who have health conditions, and for seniors.

Fill out your application – A life insurance application will ask for detailed information. You’ll need to fill out details about your health, hobbies, lifestyle, job, and more. It’s important to be truthful in your application. Lying on an insurance application is a type of insurance fraud.

The life insurance company will run your application through databases. They’ll likely find out any information you didn’t provide. This could result in your application being rejected. A rejected insurance application will go on your file at a database called the Medical Information Bureau. This could make it hard to get any life insurance policy, making it very hard to secure your SBA loan.

Take an exam – You can get life insurance without taking a medical exam. However, some companies do require it, especially with large death benefits are being applied for. Your exam will test your blood pressure, cholesterol level, height, weight, and more. It will likely also include a drug test.

Receive and accept a decision – The insurance company will notify you when the underwriting process is complete. Your application might be approved, denied, or approved at a higher monthly rate or lower death benefit amount than you initially applied for. You’ll then need to accept our approval and agree to the terms of your policy. You can generally do this instantly by electronically signing your new policy. Most companies will ask for your first payment before you sign your documents.

Request collateral assignment documents – Your insurance company likely has standard collateral assignment documents they use for SBA loans. Your insurance company can send these to your lender for you.

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Collateral Assignment Process

Whether you choose to collaterally assign an existing life insurance policy or if you will be purchasing a new life insurance policy as instructed by the lender, the process will be the same for both options.

To assign a lender to your life insurance policy, you must complete the insurance company’s collateral assignment form. This is a standard policy form that will need to be requested from the insurance company. Your agent can request the assignment form for you, or you can call the insurance company directly to request the form.

The actual collateral assignment form can be completed relatively quickly. It only consists of a couple of pages, mainly containing the terms and conditions of a life insurance policy assignment as collateral security.

While collateral assignment forms will vary from provider to provider, most will start by having you list the assignee’s name along with the address and phone number of the assignee. The second part will consist of the policy owner’s information.

The last part of the collateral assignment form will require the signature of only the policy owner. The assignee is typically not required to sign the collateral assignment form. However, in some cases, a lender may require that you complete their collateral assignment form. In that case, the document may require the signature of both you, the policy owner, and the insurance company.

Suppose a lender requires the use of their collateral assignment form. In that case, the insurance company may still have you complete their form in addition to the lender’s collateral assignment form for legal purposes.

Once the collateral assignment form has been completed, the insurance company will process the request, taking up to five business days to complete. Once processed, notification will be sent to both the policy owner and the assignee confirming the assignment of the life insurance policy has been completed.

Release of Collateral Assignment

There is likely to be a time when your SBA loan is paid back in full to the lender. When that time has occurred, you must contact the insurance company to request a policy form referred to as a release of collateral assignment.

A release of collateral assignment form removes the lender entirely from the life insurance policy. This form will require the signature of both the lender and the policy owner signature.

Once all signatures have been collected, the release of collateral assignment can be returned to the insurance company for processing and removal of the lender.

Once the insurance company has processed the release of collateral assignment, both the policy owner and the former assignee will be notified by mail that the release has been completed.

The lender will no longer have ties to the life insurance policy as they will be fully removed from the life insurance policy.

Tips to Buying Life Insurance for Your SBA Loan

An SBA approval can help a business grow and thrive. Getting the news a lender has approved your loan can be life-changing. However, the last thing you want is to hit bumps in the road and long wait times while you get a life insurance policy in place. Fortunately, there are few things you can do to make the process a little smoother.

Choose Term Life Insurance

Suppose you must purchase a life insurance policy for an SBA loan. We highly recommend going with a term insurance plan. Term insurance is going to be the most affordable life insurance option as it is temporary insurance.

Most people who purchase term insurance will likely outlive their contract making the coverage less of a risk for the insurance company having to pay out a potential death claim. Therefore, term insurance rates will always be cheaper than the rates of permanent coverage, such as universal life or whole life insurance.

With term insurance, you will find various contract lengths starting from 10-years up to 30-years. This will allow you to choose a contract length that matches the length of your loan.

Another benefit to term insurance is that regardless of the contract length you choose, your premiums are locked in for the entire contract duration once you are approved for the coverage.

Look for Providers That Offer No Exam Policies

Fitting a medical exam into your schedule can slow things down. However, not all life insurance policies require medical exams. That can save you days or even weeks.

No medical exam policies work exactly like standard term life insurance policies and can be used as collateral for SBA loans in the same way. You can apply for the coverage amount you need and get an answer quickly, often instantly.

The one concern with no exam policies and SBA loans is benefit amounts. SBA loans can be as much as five million dollars. The coverage of most no exam policies won’t be enough to act as collateral for a loan that large.

Most life insurance policies that offer non-medical underwriting are often capped at a maximum of $1,000,000 or less in coverage. However, you can have more than one no exam policy. Therefore, it can be faster, and in some cases less expensive, to buy two no exam policies and use them as collateral for your SBA loan.

Keep in mind that although you won’t need to take a medical exam, you will still need to fill out medical information on your application. Your application will be checked against multiple databases such as LexisNexis, Medical Information Bureau, or MIB for short, which are used to help underwrite applications. The insurance company will also run a prescription report to view a list of any prescribed medications.

You can be rejected for a no-exam policy and could be required to take a medical exam as part of the underwriting process.

Consider Return of Premium Plans

If your SBA payment plan is 20 years or longer, we recommend looking into a return of premium term insurance plan. A return of premium term insurance plan is a traditional term insurance policy with a built-in feature that returns every single premium payment at the end of the term length.

The only catch is that the contract lengths are typically only available on both the 20 and 30-year term lengths with the return of premium term insurance. Thus, a shorter contract such as 10-years will not have a return of premium option.

Another concern is that you will pay a higher premium compared to a standard 20 or 30-year term contract that does not offer a return of premium. However, if you have no option but to get life insurance to secure your SBA loan, you may like the idea of getting all that invested premium returned to you when your term contract has ended.

Try Working with a Life Insurance Agent or Broker

Life insurance agents and brokers have experience securing life insurance policies for SBA loans. They can help you get policies that will meet the requirements.

They’ll be able to connect you with the best companies for your budget, health, and needed collateral amount. Plus, they’ll be able to work fast and can help you ensure the collateral assignment paperwork is taken care of once your policy is approved.

Make sure you work with an independent agent or broker who isn’t tied to any specific company and can give the best options from many life insurance companies.

Working with a life insurance agent or broker won’t cost you any additional money. This is because these professionals are paid by each policy they sell and not by the clients they work with.

They’re a great resource when you’re searching for life insurance. They can cut down on your stress and save you time, especially when you need life insurance for a specific reason, such as an SBA loan.

When You Already Have a Life Insurance Policy

If you already own life insurance coverage, you can use your current policy as collateral for an SBA loan. Like a new policy, it will need to be enough to cover the total SBA loan amount and will need to have a policy term that lasts at least as long as the repayment terms of your loan. You can easily contact your current life insurance provider to request collateral assignment documents.

However, using an existing policy is rarely a good idea. You likely bought your existing policy as an essential piece of your overall financial plan. Your personal life insurance policy is meant to protect your loved ones if you die unexpectedly. It replaces your income so that your family would still have financial security.

Using that policy as collateral for an SBA loan takes away the security it offers your family. Your policy would now be going to pay your SBA loan first if anything happened to you.

So your family might end without a death benefit from your policy or with only a very small one. That’s not the part your policy was intended to play in your financial strategy.

Of course, it’s possible your needs have changed since you bought your policy. For example, let’s say a man named Byron has a whole life insurance policy. He owns a small business and applies for an SBA loan.

Byron started his small business after retirement. His children are grown and financially stable on their own. His mortgage is completely paid, and his spouse is his business partner.

The whole life insurance policy amount is more than enough to act as collateral for the SBA loan. However, in this case, Byron and his spouse might decide that they no longer need the large benefit amount of Byron’s policy and assign it as collateral to the SBA loan.

Best Companies When You Need Fast Life Insurance Approval for an SBA Loan

Your SBA loan is on the way to being approved, but to finalize it, your lender requires you to have a life insurance policy that will act as collateral. You’ll have many excellent life insurance providers to choose from, but that doesn’t necessarily mean they will all be the best choice when you need approval quickly.

We will list below the top five life insurance providers that can offer high death benefit amounts, no medical exams, and quick approval times on their term life insurance plans to provide some helpful guidance.

These providers also offer some of the easiest online application processes currently available when it comes to applying for life insurance coverage and will be an excellent choice when you need coverage quickly.

Bestow

When you need fast coverage, Bestow term life insurance plans must be at the top of your list. Bestow offers a completely digital online application process that can provide a decision for coverage that is nearly instantly.

The application process to receiving a response for approval takes an average of 9-minutes or less. Best of all, there are no medical exams required whatsoever. Choose from multiple term lengths with coverage amounts up to $1.5 million.

Ethos

Ethos offers term insurance plans to help you meet your collateral assignment needs quickly. Like Bestow, the Ethos application process is provided entirely online, leading to an average approval time for coverage in as fast as 10 minutes from start to finish.

With Ethos term life insurance, coverage amounts go as high as 1 million dollars, with most applicants not being required to take a medical exam.

Fabric

Fabric Life can offer those requiring higher coverage an easy online application process when applying for life insurance coverage. The entire applying process takes roughly 10 minutes from start to finish, with the potential of instant approval.

Coverage amount starts at $100,000 and goes as high as $5 million. If your application is $1,000,000 or less, there is the possibility of being approved without having to take a medical exam.

Ladder Life

Ladder Life will be your best option if you need a large amount of coverage to secure your SBA loan. The online broker offers a 100% digital online experience with death benefit amounts going as high as $8 million.

If your coverage needs are less than $3 million, you’re likely to experience an application process that requires no medical exams. However, any coverage amount over $3 million will need a medical exam.

Pacific Life

If you need life insurance for a collateral assignment and want the best price, Pacific Life is likely to be the company to offer you that. Applicants up to age 60 are eligible to apply for up 2 million dollars in non-medical underwriting.

In comparison, applicants up to age 69 can receive up to $1 million in non-medical underwriting provided they had a complete medical physical with blood work done in the last 18 months.

While Pacific Life can offer the potential for quick underwriting, they won’t be as fast as the other companies in our top five list.

Frequently Asked Questions About SBA Loans and Life Insurance

There’s a lot to cover when it comes to SBA loans and life insurance. For that reason, we have put together an extensive frequently asked questions section to help answer some of the common and even advanced questions about life insurance and SBA loans. 

At the very end of the FAQ section, you will find a form where you can ask a question of your own. If we missed out on answering your specific question about SBA life insurance or any question about life insurance in general, please be sure to use that form and send it to us.

We will be sure to get you an answer, and if we think it will help others, we will post it here in this article and the other list of questions.

How long does it take to get a new life insurance policy?

Before you can collaterally assign a life insurance policy, you need to have a policy in place to collaterally assign. Purchasing a new policy and the time it takes to be underwritten, approved, and placed in force will vary for everyone.

Generally, life insurance plans that require a traditional underwriting with a medical exam can take anywhere from 2-3 weeks for a healthy applicant without a history of medical issues. However, an applicant with a history of medical problems is likely to see longer approval times ranging from 3-8 weeks on average.

Suppose the underwriter needs to request medical records to help assist in underwriting your application. In that case, the time it takes for your doctor to send a copy of the records will also add to the overall underwriting timeframe.

If you need fast life insurance coverage and consider yourself healthy, many life insurance providers can offer an instant decision on approval. The only problem is that instant decision life insurance plans are typically reserved for healthier applicants, have limited issue ages, and often have a limit on the total amount of coverage you can get.

What if I am uninsurable for life insurance coverage?

Not everyone can qualify for life insurance coverage. Certain circumstances such as health issues or risky lifestyle habits can lead to a decline in life insurance, making you uninsurable for coverage.

Suppose you are uninsurable for a life insurance policy. In that case, the SBA will require that you obtain a signed letter from the insurance company stating that you are uninsurable for coverage and will need to decide whether or not they can back your loan.

Depending on the size of your loan, your lender may still be able to offer a loan. However, if your loan is of a sizable amount and the SBA cannot provide a loan because you are uninsurable, you can still seek out a loan from a bank or lender that the SBA does not guarantee.

How long does it take to collaterally assign a life insurance policy?

Once the insurance company has received the correctly filled out collateral assignment form, it will generally take 3-5 business days to process and make changes. Once the collateral assignment has been processed, both the policyholder and the assignee will be notified by mail that the changes have taken place.

Suppose you need a notification that the collateral assignment has been completed rather than waiting to receive it by mail. In that case, the insurance company can often send you a copy of the letter by email, which can then be forwarded to your lender.

Does the life insurance amount have to match the loan amount?

According to the SBA, the life insurance policy used as collateral to a loan approval must be proportionate to the amount and the term of the SBA loan being applied for. So, for example, let’s say you are applying for a $1,000,000 SBA loan with a 15-year payment plan.

To match your SBA loan with a proportionate amount and contract length, the best option in this scenario would be a 15-year term contract with a death benefit amount of $1,000,000.

The term contract would last exactly 15 years and have a payout of exactly $1,000,000 if you were to pass away. Plus, premium payments for the life insurance contract would be fixed for precisely 15 years.

What type of life insurance is best to fulfill an SBA loan requirement?

Without a doubt, term insurance will be your best option. As mentioned, term insurance is affordable, and because your loan is temporary, it does not make sense to buy a permanent life insurance policy and pay significantly higher rates.

Can I use a universal life insurance policy as collateral?

Yes. You can use any type of life insurance policy as long as the benefit amount is enough to pay off your entire SBA loan. This means you can use a whole, universal, or term policy.

The only thing to keep in mind is that permanent coverage will always be much more expensive than term insurance because term insurance expires and permanent life insurance is forever.

Are collateral assignments only used to secure SBA loans?

Collateral assignments are common with SBA loans but are not limited to only SBA loans. For example, anytime a reasonable amount of money is being loaned out to a borrower, the lender can ask for a collateral assignment of a life insurance policy.

This ensures that the lender would receive the remaining payoff balance if the borrower were to pass away with an outstanding balance left on the loan.

Can’t I just list the lender as the beneficiary?

You can name the lender as a life insurance policy beneficiary, but it is not recommended. Think about it this way. With most life insurance plans, you choose a death benefit that will remain the same amount throughout the time you have your contract. Policy loans are temporary, and as you pay towards your loan balance, the amount owed will decrease with every payment.

When you name a beneficiary of a life insurance policy, that person or entity receives the death benefit when you die. For example, suppose you have been paying your loan balance and died before paying it off in full.

In that case, the insurance company will pay the full death benefit to the lender if they are named as the beneficiary of the life insurance policy. So even if you paid half your loan off at the time of your death, the lender would receive the full amount, and they are not required to give any of the money back.

This is why when borrowing money from a lender and part of the loan requirement is to have life insurance, you make sure you collaterally assign the lender and not make them a primary beneficiary.

With a collateral assignment, the life insurance company only pays the lender the amount left on the loan, and any remaining portion goes to your beneficiary. This could be a spouse or any other loved one with an insurable interest.

Does the lender have any control of the life insurance policy?

The lender has no control of the actual life insurance policy. The policy owner is the only person that has control of a life insurance policy.

Even if the policyholder and insured are two different people, the policy owner is still the only person with full control of the policy.

They are the only ones that can receive information on the life insurance coverage or make changes to the life insurance coverage.

Do all SBA loans require collateral assignment of a life insurance policy?

There are multiple forms of SBA loans, and requirements will be different with each type of loan. For example, the most common SBA loan 7(a) may not require collateral assignment of a life insurance policy under certain circumstances.

For example, SBA loans requested under a 7(a) less than $350,000 may not always require that you collaterally assign a life insurance policy.

However, it is still up to the lender if they require you to obtain life insurance to finalize the SBA, even if it is less than $350,000. This is especially true if the borrower cannot meet the minimum credit score or if the loan cannot be secured through other forms of collateral such as property, equipment, inventory, cash, or other accounts receivable.

What happens to my life insurance policy if my SBA loan is forgiven?

Some programs allow some types of SBA loans to be forgiven if they were approved during the COVID-19 pandemic. A forgiven loan is considered paid off. In this case, your entire life insurance policy would stay in place. Your death benefit would go directly to your beneficiary if you died unexpectedly.

Do I need to keep an active life insurance policy once the SBA loan is paid off?

If your SBA loan has been paid in full, you do not need to keep the life insurance policy. In most cases, if you initially choose a term contract that matches the duration of your SBA loan contract, your term insurance will end at the same time your SBA loan will be paid in full.

What happens if I forget to remove the SBA lender from my policy?

Once you have paid off your loan balance to the lender, you should remove them from your life insurance policy by completing a release of collateral assignment form.

Suppose you pass away after the loan has been paid in full and have forgotten to remove the lender from the policy as an assignee. In that case, it will only delay the death benefit payout to your beneficiary, but they still will receive the payout in full.

The insurance company will need confirmation from the lender that there is no money due on loan. Once verification has been made, the insurance company will process the payout to the named beneficiary listed on the life insurance policy.

What happens if I stop paying my life insurance premiums?

Letting your life insurance policy lapse would likely be considered a violation of your loan terms and would probably be viewed as a loan in default. If that happens, you run a risk of the lender requesting the principal balance be paid in full.

How do I locate an SBA approved lender?

The best starting place to find an SBA approved lender is by visiting sba.gov and utilizing their Lender Match program. The Lender Match program is a service offered by the Small Business Administration that matches you to lenders interested in taking on your loan for your business.

The process is straightforward. First, you need to fill out a form describing your business and loan needs. The form takes as little as five minutes to complete. Within two days of submitting your form, you will receive an email with contact information to the lenders interested in potentially taking on your loan request.

From there, you will be able to talk with the different lenders to compare rates, terms, fees, and any additional information. Once you have chosen a lender, you can complete their loan paperwork and be on your way to securing a business loan backed by an SBA lender.

Have a question?

Do you have a question about life insurance and SBA loans or just a general life insurance question? Please, ask away, and we will be sure to get back to you with an answer.

Plus, if we think your question can help our community of readers, we will be sure to add it to the FAQs listed here within the article.

Final Thought

SBA loans require collateral before you can get the funds you need to help your business. You’ll need a life insurance policy to act as this collateral. Your life insurance policy can be used to pay the remainder of your loan if you die unexpectedly. You’ll need a life insurance policy that has a death benefit worth at least as much as your SBA loan and with a term length of at least as long as your repayment terms.

One way to speed up the process and finalize your SBA loan faster is a no exam policy. At No Medical Exam Quotes, we can show you no-obligation quotes from the best no exam companies. Just fill out our simple form to start comparing rates today. You can also give us a call at 1-888-777-7574. We would be happy to guide you in your search for life insurance.

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Jeffrey Manola - Life Insurance Expert

Jeffrey Manola - Life Insurance Expert

Jeffrey Manola is the founder of No Medical Exam Quotes, an online insurance broker with a strong focus on helping people shop for the perfect life insurance policy. Jeffrey is both a licensed life insurance expert and content creator for the website. Before becoming a licensed life insurance agent, he served in the United States Marine Corps. He transitioned from serving his country to helping families find affordable life insurance coverage since 2009. No Medical Exam Quotes is licensed to offer life insurance coverage in all 50 U.S. States.

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