Do I Need Business Insurance to Get a

2 min read

Common requirementEmployers' liability if you have staff

Often mandatoryBuildings/asset insurance where property is security

Lender-specificKey-person life cover on owner-managed businesses

Varies by sectorProfessional indemnity for regulated or advisory trades

Why lenders ask about insurance

A commercial lender is primarily concerned with repayment. If your business suffers a fire, flood, or the sudden loss of a key individual, lenders want confidence that the loan can still be serviced or the security recovered. Insurance transfers those risks to an underwriter, making the lender's position more secure. Without adequate cover, a lender may decline, reduce the facility, or impose a higher arrangement fee to compensate for the elevated risk.

Which policies are most commonly required

Employers' liability: Legally compulsory in Great Britain if you employ anyone; lenders will expect it as a baseline.
Buildings and contents / asset insurance: If property or plant is offered as security, the lender will typically require it to be insured for reinstatement value, often with the lender noted as an interested party.
Key-person life or critical illness cover: Common on owner-managed SMEs where the business depends heavily on one or two individuals.
Professional indemnity: Expected in professional services, consultancy, or regulated sectors.

What lenders are not asking you to do

Lenders are not typically prescribing the specific insurer or exact policy wording — they want evidence that appropriate cover exists and that it does not lapse during the loan term. Some facilities include a covenant requiring you to maintain named policies and provide certificates on request. Breaching an insurance covenant can be treated as a loan default, so keep renewals in your diary and notify your lender promptly if cover changes materially.

Getting cover in place before applying

If your insurance position is thin or lapsed, it is worth speaking to a commercial insurance broker before approaching a lender. Obtaining quotes — even before they are bound — demonstrates to the lender that cover will be in place by drawdown. For specialist policies such as key-person or trade credit insurance, lead times can be several weeks, so factor that into your funding timeline.

Frequently asked questions

Can a lender cancel my loan if my insurance lapses?

Yes. Most commercial loan agreements include a covenant to maintain specified insurance. A material lapse can constitute an event of default, giving the lender the right to demand repayment or appoint receivers. Always renew on time and notify your lender of any significant change.

Does public liability insurance affect lending decisions?

It is not always a hard requirement for lending, but it signals professional housekeeping and is often expected in sectors where third-party claims are foreseeable. Some lenders include it in their standard conditions checklist.