Collateral assignment Form for SBA Loans and Business Loan
When applying for a business loan, the SBA or other lenders often require that a borrower 
take out a life insurance policy on themselves and an assignment form be prepared prior to the closing date of the business loan.
What is an assignment Form?
The assignment form basically allows the lender to have full control of the life insurance policy. This allows the lender to make changes to the life insurance such as beneficiary information, payment mode, face amount or other. It also gives more security to the lender that the loan will be paid in case of the borrower's premature death.
Which Assignment Form should Be Used?
There are basically two kinds of life insurance assignment forms. The first one is an insurance company form and the other is the lender's assignment form. Either one is fine but ultimately the lender decides which they prefer. It is important that you do not assume that the lender will accept the insurance company's assignment forms. Although in most cases insurance company assignment forms are acceptable, you must ask the lender before closing (at least a week before) so that they are no surprises at the business loan closing.
If you have applied for multiple life insurance policies with multiple insurance carriers, each life insurance policy will need its own assignment form. Most insurance carriers get the forms ready quickly but do not always count on it. Some lenders will allow the use of their assignment form to close the loan on condition that the insurance company's assignment forms are also processed by each carrier. being able to use the lender's assignment form may allow you to finalize the closing of the loan a few days earlier. Some lenders will also be OK with a faxed copy of THEIR assignment form.
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What should the Assignment Form Contain?
Most assignment forms are in a fill in the blanks format but, just in case, we thought you should know. An assignment should have your name, the lender's name, the insurance company's name, your full address and the lender's address. The form will also contain the amount of life insurance that has been approved and is in force. It should be signed by the lender then by the insurance company who will keep a copy and send one to the lender. You may also retain a copy.
Who is named beneficiary in the Life Insurance Policy?
Most borrower assume that the lender is the named beneficiary in the assigned life insurance policy. That is very rarely the case. We actually do not recommend that, unless required by the lender, that you name the lender as beneficiary. In most cases a spouse or a business partner is the beneficiary. The beneficiary information is not part of the assignment form.
When should You have the Assignment form ready?
The answer is actually simple, as soon as the life insurance policy is approved, the SBA Loan or standard business loan assignment form should be prepared. If the lender information is not yet ready, then the assignment form should be ready as soon as the loan information is available.
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They are many other parts of the SBA or business loan life insurance that need to be taken care of as soon as possible and that has been covered in other articles we wrote. Bottom line is, find someone who is familiar with the process and start getting the life insurance in place and all need forms relating to the life insurance as soon as possible. Be well.
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