If we make a commercial loan, secured by inventory and equipment (UCC-1 filed) which is stored in a building located in a SFHA but we don't take the building as collateral, must we require the borrower to obtain flood insurance on the contents?

Page 32 of the FEMA Mandatory Purchase Guidelines states, "On the other hand, flood insurance is not required for a loan financing inventory where the secured collateral is stored in a building located in an SFHA and the building is not security for the loan".

Per this information, I'd say we are not required to get flood coverage on the contents. Could I get a second (or third, fourth, etc.) opinion?

You must have a security interest in both the building and the contents for the mandatory contents coverage to be applicable.

Great - thanks Dan!

Unless it is SBA. It is my understanding that even though the structure isn't being taken as collateral, SBA requires that if the collateral inventory, etc. (contents) are located in a building within a SFHA, they require flood insurance.

WS - that is correct.

And the question also becomes a safety and soundness issue.