SBA mandates flood insurance under the National Flood Insurance Program (NFIP) in the following 2 scenarios:

1. If any portion of a building that is collateral for the loan is located in a special flood hazard area, the building must be insured under the NFIP; and


2. If there is any Personal Property Collateral (equipment, fixtures or inventory) for the loan in a building set forth in the prior paragraph, the Personal Property Collateral must be insured under the NFIP.

SBA considers NFIP flood insurance to be "waivable" in the following scenario:

Lenders should be careful not read this ability to waive flood insurance as flood insurance being "optional" in this situation. The general rule of thumb is that all real estate and Personal Property Collateral located in a flood zone must have insurance under the NFIP except in very limited circumstances.

Additionally, Lenders should keep in mind that the borrower must obtain insurance coverage in an amount equal to the lesser of the insurable value of the property or the maximum limit of coverage available (currently $500,000 each for real estate and Personal Property Collateral under the NFIP).

Finally, make sure that the insurance coverage contains a Mortgagee Clause (for real estate coverage), or Lender's Loss Payable Clause (for Personal Property Collateral) that provides that any action or failure to act by the debtor or owner of the insured property will not invalidate the interest of lender.

Protect and preserve the SBA guaranty from repair or denial by following these guidelines and ensuring that borrowers have all of the insurance the SBA requires.

For more information on SBA's insurance requirements, and other SBA compliance issues, contact Ethan Smith at