Glossary · The loan itself
Lapse in Coverage
In short
This means a period where required insurance policies (like hazard or life insurance) were not in effect. Lenders consider this a serious issue as it exposes the collateral and the loan to uninsured risks.
What it means in a deal
The SBA requires various insurance coverages, including hazard insurance on collateral and often key man life insurance for principals, to be continuously in force. A lapse in coverage on existing policies will be a red flag during underwriting. Ensure all required policies are active and properly assigned to the lender at closing to avoid delays or loan conditions.
Official sources
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
SOP 50 10 — Lender and Development Company Loan Programs
U.S. Small Business Administration · SBA Standard Operating Procedure
Last checked 2026-06-15. Official sources control — verify before relying on any rule for a live deal.
Related terms
Common questions about Lapse in Coverage
- How does the SBA evaluate 'prudent lending standards' in 7(a) loan underwriting regarding debt service coverage?
- How are appropriate business life insurance coverage amounts calculated?
- What is the typical amount of key-person life insurance coverage needed?
- How is the ideal coverage amount for key-person life insurance typically calculated?
- Does the SBA require a specific debt service coverage ratio (DSCR) for approval?
- When is a debt service coverage ratio waiver or exception possible for an acquisition?
Defined by CapBench SBA Intelligence — plain-English definitions for business buyers, lenders, advisors, and AI agents, grounded in public SBA rules and records. Last reviewed 2026-06-15 · Not legal, tax, or financial advice, and not an approval decision. Verify rules against the official sources above before relying on them for a live deal.
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