Insurance Agency Loans: How to Qualify and Use Funding
That’s where insurance agency loans can help. You can use these business loans to fund an acquisition, streamline operations, or hire new staff. That challenge is finding and obtaining the ideal funding option for your agency and maximizing the return on your funds.
To help you with all of those things, we put together this guide to pursuing insurance agency loans. Although all business owners can benefit from working capital loans, the insurance industry specifically can utilize funding for growth opportunities. Among other things, in this post, you’ll learn about your loan options, how to apply, and how to use your loan funds.
Insurance Agency Loan Options
While there are many different kinds of business loans for an insurance agency, we’ll focus on the following three broad categories:
1. SBA Loans
From 2005 to 2015, insurance agencies and brokers have taken out almost 5000 Small Business Administration (SBA) loans worth a total of $950 million. Relative to other small business loans, SBA lending options typically come with low interest rates. They also have long loan terms, which can keep payments low.
There are some restrictions on the use of funds for SBA loans but you can use them for:
- Long and short-term working capital
- The purchase of equipment, furniture, or supplies
- Real estate acquisition
- New construction or building renovation
- Purchasing an existing business or starting a new one
- Assisting in business expansion or operation
- Refinancing existing business debt
SBA loans are a great option for insurance agents, but they can be difficult to qualify for. For example, captive agencies may be ineligible if they’re considered an affiliate, which is up to the SBA lender to determine. Plus, because SBA loans are so competitively priced, the application process is very competitive.
2. Traditional small business loans
A traditional small business loan is a commercial loan that you obtain from a bank or credit union. These loans are generally similar to SBA loans in structure, terms and conditions. For example, all of the use of funds listed above for SBA loans are also permitted for most traditional small business loans.
However, these loans aren’t as competitively priced as SBA since they’re not backed by an SBA guarantee. The lack of an SBA guarantee also means the credit requirements for traditional small business loans are very stringent.
To qualify for a traditional loan as an insurance agency, you’ll need (at least) a long successful track record, excellent credit, and a low debt-to-income ratio. If you have strong financials, traditional loans are a great way to grow your insurance agency.
3. Private business loans
If you have a poor credit score, or you don’t have a long business history, private business loans can be a viable financing solution. These loans are made by private companies rather than banks or credit unions. Private business loans are far more flexible and tend to have much more variety.
Private business lenders also face much fewer regulations and bureaucracy so they can approve and process loans fast. Private loans are also far more purpose-built. There are even certain private lenders that specialize in insurance agency loans.
That said, since private business lenders allow for less-than-perfect financials, their rates are usually higher relative to banks.
How to Apply for an Insurance Agency Business Loan
The application process for insurance agency business loans varies slightly depending on both the loan and lender type. For example, private business lenders tend to require significantly less paperwork than banks and the SBA. However, regardless of the loan you apply for, you can expect to be required to:
- Fill out an application.
- Provide personal and business records.
- Share personal and business credit scores and financial statements.
With traditional loans, most SBA loans, and some private loans, you’ll also need to prepare a business plan. For more on the business loan application process, read The Ultimate Guide to Applying for a Small Business Loan.
How to Use Your Insurance Agency Loan
Obtaining the right loan for your agency is only the first step. After that, you need to make sure you maximize the return on your funds. Doing that requires a careful analysis of your most promising growth opportunities. To get you started, though, here are few ideas of where to spend your loan funds:
- Hire new employees or training existing ones
- Expand your insurance offerings
- Launch an advertising campaign or expand an existing one
- Upgrade your computer equipment
- Invest in new software to streamline and/or digitize operations
- Have additional cash flow available for future needs
Is a Business Loan Right for Your Insurance Agency?
If you are an insurance agency owner and need a large cash infusion to grow your business, a service business loan can accelerate your success. Of course, that’s assuming you can qualify and afford regular payments.
Whether you decide to pursue an insurance agency business loan or not, we recommend exploring other options. That’s not to say a business loan isn’t the right choice, but it’s important to be aware of all your business financing options.
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.