When reviewing an application for an SBA 504 Loan, Big Sky Finance is required to assess whether the viability of the business is tied to an individual or individuals. This is a person, who if they should pass away, would affect the ability of the business to repay the SBA loan.
Life insurance is required for the principals of sole proprietorships, single member LLCs, or for businesses otherwise dependent on one owner’s active participation when the SBA Loan is not fully collateralized.
If a company has such a person, the SBA requires a collateral assignment of life insurance on the life of the business owner as additional collateral for the loan. Life insurance may be waived if there is strong transition plan in place with a person who can operate the business or if there is sufficient collateral to cover the loan.
The amount of life insurance required will never be more than the original amount of the SBA loan, and in most cases it may be less, depending on the value of the collateral. We may also accept the pledge of an existing life insurance policy as long as there are sufficient proceeds available. The term of the life insurance must be at least the term of the SBA Loan.*
When life insurance is required, it is important that the key person start the assignment process soon after the SBA Loan Authorization is issued, as it may take a minimum of 45 to 60 days to receive the acknowledged collateral assignment from the home office of the life insurance company. Starting this process sooner rather than later will help eliminate delays when closing the loan.
*25-year SBA terms only require a 20-year term life insurance term.
Important Reminder: SBA 504 Subsidy Payments
Automatic debits will resume April 1st for those borrowers who received payment subsidies in February and March. Borrowers in hard hit industries will continue to receive subsidy payments through June, 2021.
Interested in learning about the benefits of the SBA 504 Program? Does your team need a refresher?
Big Sky Finance is here to help!
We are available to provide free virtual training for your team or organization. Knowing the benefits of the SBA Loan program not only helps the borrower but can help you with closing more deals.
If you would like to learn more or set up a virtual training for your team, please contact Brandon Berger at [email protected].