SBA SOP 50 10 8.1, A.Ch5.C.3 — Flood Insurance

SOP 50 10 8.1 A.Ch5.C.3

Effective 2026-10-01 · publisher's stamp for this provision

3. Flood Insurance a. SBA flood insurance requirements are based on the Standard Flood Hazard Determination (FEMA Form 086-0-32 or its successor). The mandatory purchase of flood insurance will be required as set forth by the provisions of the National Flood Insurance Program (NFIP) and the Interagency Questions and Answers Regarding Flood Insurance at 12 CFR Part 22, 12 CFR Part 208, 12 CFR Part 339, 12 CFR Part 614 and 12 CFR Part 760. Policies for condominium and cooperative units will consist of a policy obtained by the individual unit owner for the particular unit. For 504, CDCs must obtain a FEMA Form 086-0-32 (or its successor), or a copy of the form obtained by the Interim or Third Party Lender. b. Private flood insurance will be accepted; however, it must meet the same requirements as the standard NFIP policy. If used, private flood insurance must: i. Provide coverage that is at least as broad as the coverage provided under the standard NFIP policy, including when considering deductibles, exclusions, and conditions offered by the insurer; ii. Include an endorsement that the insurer must give 45 days’ notice of cancellation for non-renewal to the insured and the 7(a) Lender (for 7(a)), or the CDC/SBA (for 504); iii. Include information about the availability of flood insurance coverage under the NFIP; iv. Contain a mortgage interest clause similar to the one in the standard NFIP policy; v. Contain a provision requiring an insured to file suit not later than 1 year after date of a written denial of all or part of a claim under the policy; and vi. Contain cancellation provisions that are as restrictive as the provisions contained in the standard NFIP policy. c. If any portion of a building that is collateral for the loan is located in a special flood hazard area, the SBA Lender must require the Applicant to obtain flood insurance for the building under the NFIP or comparable private flood insurance (see Subparagraph b above). d. If any equipment, fixtures or inventory that is collateral for the loan (“Personal Property Collateral”) is in a building of which any portion is located in a special flood hazard area and that building is collateral for the loan, SBA Lender must require Applicant to also obtain flood insurance for the Personal Property Collateral either under the NFIP or through comparable private flood insurance (see Subparagraph b above). e. Insurance coverage must be at least equal to the outstanding principal balance of the loan or the maximum limit of coverage made available under the National Flood Insurance Act of 1968, as amended (42 U.S.C. § 4001 et seq.), whichever is less. (“Maximum limit of coverage available” is the lesser of the maximum limit available under the NFIP for the type of structure or the insurable value of the structure.) f. Insurance coverage must contain a MORTGAGEE CLAUSE/LENDER’S LOSS PAYABLE CLAUSE (or substantial equivalent) in favor of the 7(a) Lender (for 7(a)), or the CDC/SBA (for 504). This clause must provide that any action or failure to act by the debtor or owner of the insured property will not invalidate the interest of the 7(a) Lender (for 7(a)), or the CDC/SBA (for 504). The policy or endorsements must provide for at least 10 days prior written notice of policy cancellation to the 7(a) Lender (for 7(a)), or the CDC/SBA (for 504), or 45 days in the case of private flood insurance.

Source: SBA SOP 50 10 8.1, A.Ch5.C.3 — Flood Insurance · source URL · snapshot 0fb0c4692cf52938