The CARES Act for Small Businesses
The CARES (Coronavirus Aid, Relief and Economic Security) Act is a stimulus bill providing $2 Trillion of desperately needed economic relief, some of which is going to small businesses as they navigate the Coronavirus (COVID-19) pandemic. There are two programs in the CARES act, specifically focused on providing economic stimulus for small businesses. The programs provide loans through the Small Business Administration (SBA), some of which may be forgivable.
The two programs are:
- Paycheck Protection Program (aka PPP) // $359 Billion available
- Economic Injury Disaster Loan (aka EIDL) // $10 Billion Available
Since 1953, Entrepreneurs across the US have utilized the SBA to help fuel the building of their business dreams. From restaurants and coffee shops, to general contractors and family-run corner stores, small businesses in virtually every sector of our economy utilize SBA supported loan programs, accounting for billions in capital each year.
In the next ~90 days, the SBA will likely lend more money than they have in the past decade.
This is a once in a generation Black Swan Situation, and all small businesses impacted by the Coronavirus / COVID-19 are strongly encouraged to apply. As mentioned above, some of the loans may be forgivable to the borrower if the proceeds are used for payroll, rent, and other necessities. Keeping individuals employed is critical to maintaining a support system for the people who make our businesses and our economy flourish. We’ve put together a list of resources to provide more information on the loans and insurance coverage available to your business on our Coronavirus Resource Page.
Getting a CARES Act Loan
A critical step in the application process to obtain an SBA backed loan is providing ‘Proof of Insurance,” or a “Certificate of Insurance” that meets the SBA Insurance Requirements. Like most insurance requirements, they’re lengthy, technical, and confusing. We’ve heard countless stories already from small businesses who’ve gotten hung up on this stage of the application process, and discouraged from continuing. We don’t want insurance to become a barrier to businesses getting the stimulus that they need in these challenging times. Below, you’ll find a quick breakdown of the requirements, and instructions for making sure that your Certificate of Insurance checks all of the boxes.
SBA Loan Insurance Requirements
While requirements vary by business type and loan size, these are the coverages the SBA typically requires. In the next section, you’ll find a guide to help you determine which policies you’ll be required to carry.
You’ll likely need to have some level of property insurance, depending on what type of property your business has. If your business owns ‘real property’ (a.k.a. real estate), it may be used as collateral for the loan. In this case, you’ll need to have replacement coverage for various perils like wind, hail, earthquakes, floods, etc. Even if you don’t own real property, every business will need coverage for business personal property, or BPP – at full replacement cost. The majority of the time your property insurance can be obtained through a Business Owners’ Policy (BOP), or a Standard Package.
Every SBA loan will require General Liability Insurance (GL). The good news is that General Liability can be found in every BOP or Standard Package policy. Depending on the GL limit required, it might be more affordable to purchase a BOP or Standard package policy with lower limits, and add an Umbrella Liability Insurance policy to raise the limits on your General Liability Insurance. If you’d like to consult an insurance advisor to see which option is best for you, Reach out anytime! Email email@example.com or give us a call at (877) 968-9108.
Product Liability Insurance
If your business sells a product, the SBA may require product liability insurance. You’ll likely already have Product Liability Insurance if you’ve gotten a contract with any retailer or distributor in the past. (And requirements aside, it’s an important coverage for any business selling a product!) Product Liability is sometimes sold as its own policy, but typically it will be part of your General Liability policy. Pricing will vary based on 1) What you sell, and 2) how much of it you sell.
If your business provides a service (e.g. consulting, engineering, design, etc.), the SBA will likely require that you have a professional liability or ‘errors & omissions (E&O)’ policy. Professional Liability policies are easy to find, and can often be tailored to your specific industry. Pricing will vary based on the services you provide.
The hospitality industry has been one of the hardest-hit by the Coronavirus pandemic. Many of the bars, restaurants, concert halls and other businesses that were forced to close will need to take advantage of SBA loans under the CARES Act in order to reopen at all. If you’re one of these businesses – and serve alcohol – you’ll need liquor liability insurance. This is typically an extension of the General Liability coverage, but can also be purchased separately.
Barring a few specific exceptions, if you have employees you’ll need to carry Workers’ Compensation Insurance. The SBA will need to make sure that you have current coverage that at least meets your state’s requirements. Workers’ Compensation can be easily obtained, and is sometimes even provided by your payroll provider. In a few states (OH, WA, SD, and WY, for example), you’re required to purchase Workers’ Compensation through your state’s insurance exchange.
A common question in the small business community, is do you really need life insurance to get an SBA loan? The short answer is probably. The SBA nearly always requires what’s often known as “Key-Person Life Insurance.” If something happens to the founder and/or managers of your business, this policy will pay out with the SBA as a beneficiary. The reason that the SBA requires life insurance is to protect themselves against any possibility of the loan not being paid back, untimely death included.
Breaking down the SBA Insurance Requirements
Below is a guide to figuring out what your specific business will be required to carry. You’ll received more detailed information from your lender when you begin the application process. For guidance from licensed insurance advisors, email your specific insurance requirements to firstname.lastname@example.org, and we’ll make sure you have everything you need.
- General Liability Insurance – Limits vary by business
- Property Insurance – Full Replacement Cost. Must contain a ‘Lender’s Loss Payable Clause’ in favor of lender (SBA)
- Life Insurance – Limits depend on the amount and type of other collateral available
If you have EMPLOYEES
- Workers’ Compensation – At least meeting statutory Limits
If you own REAL ESTATE
- Property Insurance – Must contain a ‘Mortgagee Clause’ in favor of lender (SBA)
If you sell PHYSICAL PRODUCTS
- Product Liability Insurance – Limits vary by product
If you provide a SERVICE
- Professional Liability Insurance – Sometimes referred to as ‘Errors & Omissions (E&O) or Malpractice Insurance
If you sell ALCOHOL
- Liquor Liability Insurance – Often sold as part of your General Liability Insurance Policy.
Other Potential Requirements
- Flood Insurance – If your business is located in a special flood hazard area, you may have additional requirements based on the Standard Flood Hazard Determination
- Hazard Insurance – If loan proceeds will finance existing or new improvements on a leasehold interest in land, the lease must include Lender’s (SBA) or Assignee’s right to hazard insurance proceeds resulting from damage to improvements
- Marine Insurance – If a vessel is collateral on the loan, you’ll need coverage in the amount of the full insurable value of the vessel(s) with the lender (SBA) designated as ‘Mortgagee.’
Where do I Get it?
The best way to know that you have the exact coverage that the SBA Requires is to work with a licensed advisor to build a policy tailored to your business needs. That way, you’ll know you have the right coverages, limits, endorsements, and additional specifications on the first try. For example, it’s likely that the SBA or lender will need to be listed as an Additional Insured and/or Certificate Holder, requiring a brand new Certificate of Insurance even if you have the correct policies in place. Bunker’s team of advisors actively work with you and your lender to ensure your certificate of insurance meets all of SBA’s requirements for your specific business.
We’ve created the SBA Insurance Package to get you started. After you’ve completed the initial application (which takes about 5 minutes), one of our licensed advisors will reach out to make sure you have everything you need for your SBA loan, as quickly as possible. Our goal is to make this as fast and affordable as possible, so you can close your loan and get the funding your business needs!
We offer minimal or no money down options, so that insurance doesn’t become a barrier to saving your business.
If you already have an agent or broker you’re working with, make sure you’re specific about your business and the SBA requirements. Make sure to get a copy of the exact requirement from your lender or the SBA, as they may vary by loan type.
If you have any questions, reach out to email@example.com, or give us a call at (877) 968-9108. We’re proud to provide a smooth, affordable insurance process to the small business community!