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When SBA loans are serviced and serviced. It is important for lenders and CDCs to have adequate insurance to protect collateral. The SBA requires some type of collateral for all loans. However, consider whether other types of collateral should be included in all SBA loans to reduce risk and increase the chances of recovery. It is the responsibility of lenders and CDCs to carefully consider whether.
Flood Insurance Lender Requirements
Lenders to maintain risk insurance on all pledged collateral. If the lender’s business is air, If found in a situation that requires additional coverage, such as hail or earthquakes; The borrower must provide a separate policy. 13 CFR § 120.160; SOP 50 10 5(K).
Flood Insurance Requirements
Lenders and CDCs are required to ensure that all collateral of recoverable value is adequately secured to protect the recoverability of an SBA loan. Risk insurance requirements should be included in the loan approval and should not be canceled or reduced unless the insured assets are sold or substantially reduced in value. If a lender allows excess insurance coverage. If lenders and CDCs comply with guaranteed lending practices. Borrowers can be secured. Lenders and CDCs that maintain insurance coverage may treat the cost of insurance as a recoverable expense. SOP 50 57 2; SOP 50 55.
The borrower should name the SBA or borrower/CDC as the loss payer in their risk insurance policy. As a general rule, As a general rule, proceeds should not be disbursed unless the insured property has been properly repaired or replaced, and no construction or repair liens have been filed against the property. This is especially important for guaranteed checks over $10,000. If the borrower does not have the appropriate supporting documents, the lender or the CDC must check and verify the release of the collateral income. The Borrower or CDC may issue guarantees pursuant to an additional agreement approved by legal counsel; Or alternatively, the borrower can open a federally insured joint savings or custodial account with the borrower/CDC and make progress payments. SOP 50 57 2; SOP 50 55.
Lenders and CDCs must request proof of real estate insurance if the SBA loan is secured by real estate. Property insurance is:
(c) contain a “mortgage clause” in favor of the Lender/CDC and shall provide that no act or default by the Mortgagor or the owner of the secured property shall prejudice the interests of the Lender/CDC/SBA; against
Things Home Buyers Must Know About Flood Insurance
Similarly, If an SBA loan is secured by personal property. Lenders and CDCs must request proof of personal property insurance. Personal property insurance must have:
(b) if full replacement costs are not available; The coverage must be at the maximum insurable value.
(c) contain a “borrower forfeiture clause” (or substantial equivalent) in favor of Lender/CDC and provide that no act or omission by Lender or holder of secured personal property shall extinguish the interest of the Lender or secured personal property; Lender/CDC/SBA.
For small loans that do not qualify for Standard 7(a) loans of less than $350,000 or acceptable credit scores lower than 7(a); Lenders may follow their own internal policies for non-SBA insured business loans of similar size in making the determination. Is life insurance right for you? However, 7(a) if the loan is not fully secured by collateral or if the loan is a 504 loan; SBA sole proprietor; Life insurance is required for single-member LLCs or businesses that depend on the activity of one owner. Participation Lenders and CDCs may take available collateral into account when determining the appropriate amount of life insurance required. SOP 50 10 5(K).
Flood Insurance Cost 2021
If you need life insurance with the loan documents. This requirement should not be modified or terminated unless there is a reason why the policy is no longer needed. Lenders and CDCs must open an escrow account to ensure the borrower pays the policy premium. If premium payments are not made; Lenders and CDCs should consider whether coverage is based on prudent lending practices. SOP 50 57 2; SOP 50 55.
Generally, Proceeds from the life insurance policy must be applied to the principal balance of the loan without any recovery costs. All or part of the life insurance proceeds should be released if the death of the policyholder does not have a significant impact on the management of the business and:
(c) There is no reason to expect that the loan will not be repaid in full based on the strength of the business.
Lenders and CDC may decide to place the security proceeds in a trust account for distribution after the Lender/CDC has had an opportunity to observe the borrower’s ongoing operations and make a careful decision. SOP 50 57 2; SOP 50 55.
Land Surveyors, Fema, And Other Flood Zone Issues
If any collateral is located in a special flood hazard area, each borrower must obtain flood insurance. If located in a special hazard area designated by the Federal Emergency Management Agency; If the community participates in the National Flood Insurance Program (“NFIP”), the insured property is in a special flood hazard area. Flood insurance is the responsibility of lenders and CDCs if it is maintained for the life of the loan. The flood insurance must equal the remaining principal balance of the loan or the maximum coverage limit under the National Flood Insurance Act of 1968, whichever is less. The policy contains a “mortgagor/borrower loss coverage clause” (or substantial equivalent) in favor of the borrower/CDC. This clause requires at least 10 days’ written notice to the Lender/CDC of cancellation of the policy 13 CFR § 120.170; SOP 50 10 5(K).
Sometimes, Property collateral is located on a non-collateralized building located in a special flood hazard area. In that case, The lender or CDC requires the borrower to obtain flood insurance for collateral against personal property. However, Lender or CDC may waive this requirement if: (a) reasonable lending criteria are used to determine that flood insurance is not economically feasible or available; and (b) it includes a justification in the loan file that fully explains why flood insurance is economically feasible or unaffordable and the steps taken to make this determination. SOP 50 10 5(K).
Whenever the borrower requests a service; Lenders and CDCs should review the adequacy of flood insurance and the need for flood insurance. Lenders and CDCs must deny all servicing requests until the borrower obtains the proper flood insurance. If the collateral is not adequately covered by flood insurance at any time during the life of the loan. Lenders and CDCs must instruct borrowers to obtain adequate flood insurance within 45 calendar days. If the borrower does not do so within 45 days, the lenders and CDC must purchase flood insurance on behalf of the borrower and treat the cost as a recoverable expense. In the event that community borrowers who opt out of the NFIP no longer have access to flood insurance. Lenders and CDCs must maintain documentation in the loan file that defines why the flood insurance is no longer covered. SOP 50 57 2; SOP 50 55.
Lenders and CDCs should carefully consider whether other types of insurance should apply to each SBA loan. Other types of insurance to consider are:
What Are Flood Zones And Do I Need Flood Insurance?
Failure to secure adequate and adequate insurance coverage can lead to a “fix” on a 7(a) loan. Reparation means an agreement between SBA and a 7(a) borrower to pay SBA a specified dollar amount from SBA disbursement funds to fully compensate SBA for any actual or anticipated loss incurred by SBA; Lender’s acts or omissions.” SOP 50 57 2.
Lenders and CDCs must use careful lending criteria to ensure adequate insurance coverage to minimize risks and ensure maximum recovery of SBA loans. Most often, each SBA loan will require several types of collateral. To avoid possible problems; It is important that lenders and CDCs keep all decisions regarding insurance requirements in the loan file. If you use a Galaxy Fold; View in full screen to optimize your experience or optimize your experience.
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