When Speed Matters
Melby, Todd, Independent Banker
In the Boardroom
A new service for last-minute life insurance approvals on SBA loans
In an age when information seems to move at the speed of light, waiting for insurance verification to close business loans can be a frustratingly slow experience.
"Everyone wants quick turnaround," says Hakim Kassam, a Small Business Administration loan officer for Temecula Valley Bank of Temecula, Calif., a commercial bank with about $180 million in assets.
From his Coral Springs, Fla. office-- one of nine SBA lending facilities the Temecula Valley Bank operates nationwide-Kassam provides financing for a wide range of businesses. In recent months, his clients have obtained loans of $150,000 to $1.3 million to expand or purchase a hair salon, tree cutting service, assisted-living facility or dry cleaners.
In most cases, the future success of such small firms depends primarily on a single person. But what if that entrepreneur dies? To secure the portion of SBA loans not covered by government guarantees, Temecula Valley Bank suggests business owners purchase personal life insurance. That insurance policy serves as the bank's collateral. Unfortunately, the underwriting process involved in obtaining a policy often drags out over weeks, sometimes delaying the closing of an SBA loan.
Although Kassam doesn't recommend any particular insurance provider-that decision rests with the business owner-he does offer alternatives. And one of those alternatives Kassam often mentions is MassMutual's QuickClose service. Instead of weeks of waiting, MassMutual promises to issue the life policy, including collateral assignment, in seven to 10 business days, assuming a favorable underwriting decision. This timing applies to policies up to $10 million in death benefit and $100,000 in annual premium.
"Our big advantage is the speed at which we provide policies," says Philip D. Klein, director of strategic market development at Massachusetts Mutual Life Insurance Co., commonly known as MassMutual. "We take a headache off the lender's desk. The lender and borrower don't have to worry and wait for the underwriting process to get completed."
Another noteworthy advantage is that MassMutual provides duplicate premium notices that give lenders a heads up and help them to comply with the SBA's "right to cure requirements," Klein says. "Under these requirements, an SBA lender must have the option of stepping in to pay premiums to protect its and the SBA's interests in the event the borrower dies before the loan is paid off."
Need fop Speed?
Why the need for speed? It's timing, mostly.
Many business owners looking for SBA loans aren't told they need life insurance as collateral until after the SBA approves their application. It's at that crucial moment when the clock starts ticking down to closing time.
Robyn McGloin, MassMutual agent in Delray Beach, Fla., offered this insight into the mind of the loan officer: "If I tell this person to get life insurance, and he doesn't get the [SBA] loan, he's done that in vain. So I wait until I get a solid OK from the SBA.
"From that point, I've got two weeks to do my work. …